Why The Birth Of A 'New Oil Bull Market' Is Imminent? (Part 1)


  • Crude oil prices have become hostage to upgrades and downgrades by major banks and analysts, many of which are now predicting a stronger oil market in 2016.
  • Will 2016 lead the way to the birth of a "New Oil Bull Market"?
  • I will attempt to provide an objective view on the fundamentals of oil supply and demand and the reasons why oil prices are heading much higher.

Banks and Analysts are Lining up to Predict a Bottom in Oil Prices in 2016

Crude oil (NYSEARCA:OIL-OLD) prices slumped recently below $27 per barrel to levels not seen since 2003. Despite many negative news still surrounding the outlook on crude oil prices including record oversupply, a strong dollar, a weak global economy, and Iranian oil hitting the markets, a wave of Banks and Analysts are lining up to predict a bottom in 2016.

  • Goldman Sachs, who was among the first to postulate that oil prices might fall to the range of $20 per barrel, is forecasting $40 per barrel for the first half of 2016 and says that a new bull market in oil will evolve in late 2016.
  • Societe Generale says "buy oil now as OPEC must cut output to stop bleeding".
  • According to UBS Bank, "There is a recovery story for the second half of 2016".
  • Citigroup is topping all projections with an average Brent price of $41 a barrel in Q3 2015 and $52 before year-end 2016. It has even called that Long Oil from here to be "the trade of the year".

The consensus mean price according to 12 estimates this year compiled by Bloomberg is about $47 for the fourth quarter 2016.

In order to understand why the major banks are upgrading their outlook on crude, we need to have a look at the forces that will drive crude supply and demand in 2016 and the impact that these drivers will have on the price of crude.

Factors Driving Crude Supply and Demand in 2016

Current Levels of Supply and Demand: According to the US Energy Information Administration's (EIA) January 2016 report, the current global crude supply stands at 95.9 million barrel per day (mb/d) while global demand stands at 94.3 mb/d. The

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