A Calgary oil forecaster has a positive message to a beaten down oil patch, as he expects prices to start recovering in the next year.
However, the recovery will be subdued, with only marginal gains as global oil supply begins to fall and demand continues to rise.
FirstEnergy’s commodity analyst, Martin King, delivered his analysis to a few hundred people at the Petroleum Club in downtown Calgary.
‘U.S. demand has been gangbusters.’
– Martin King, FirstEnergy
“The market is finding balance, I can’t say that enough,” King told the crowd. “Low prices mean better demand and that’s what we are starting to see.”
He expects West Texas Intermediate, the North American benchmark, to average just under $50 US a barrel this year and about $57 in 2016. Today it rose above $48, after being stuck in the $45 range for more than a month.
The price for Brent crude could be $55 this year and $62 next year. Much further down the road, he expects prices in the $60 and $70 range in 2017 and 2018.
Signs of improvement
“It’s a bumpy bottom here, in our view, but you are starting to find these signs of improvement, both in terms of demand and supply.”
The comment was echoed by the chief executive of Royal Dutch Shell, Ben van Beurden, speaking at an oil industry conference in London on Tuesday
“I see the first mixed signs for recovery of oil prices,” he said, according to Reuters. “But with U.S. shale oil being more resilient than we originally thought and a lot of oil still in stock, it will take some more time to rebalance demand and supply.”
King describes the price recovery as unique as it will be slow, although he admits he may be more conservative than other price forecasters. Last month, two Canadian economists suggested oil will hit $60 by the end of next year.
The oversupply of oil, which is blamed for the price crash of 2014, is starting to improve. The United States is the main reason, as production is falling and consumption is growing in the world’s largest market.
U.S. demand grows
King expects the oil supply to drop by one million barrels per day by the end of the year compared to a peak in April. U.S. demand is expected to grow by 426,000 barrels this year with further increases in the coming years.
Martin King, FirstEnergy Capital
Martin King expects oil prices to gradually improve in the coming years. (Kyle Bakx/CBC)
“U.S. demand has been gangbusters,” said King. “They are finally back on the road driving lots and lots of miles burning up gasoline.”
Canadian oil supply is expected to grow by 43,000 barrels per day this year and a further 217,000 barrels next year. Currently, there is pipeline and rail capacity to ship Western Canadian oil to refineries south of the border.
King forecasts global oil demand to increase by 1.7 million barrels per day this year and 1.4 million barrels in 2016.