Oil Monthly Fundamental Forecast – August 2016

Crude Oil got hit hard this month to close at 41.45 after violating the $40 price level. WTI oil is down 15.39% this month and off by 17% for the year. Brent Oil ended at 43.36 off by almost 14%. Unlike natural gas supplies, which continue to decline, the worldwide production of gasoline can’t seem to hit the brakes.  The glut is worsening as crude producers continue to pump, refineries continue to crack, and storage tanks of unleaded of all sizes are filled to the brim. Inventories are now 11 percent over this time last year despite increased demand from summer drivers who are thrilled about cheap fuel.

The oil market is expected to enter into sustained physical balance by the latter half of 2017 as healthy global demand continues to outpace anemic supply growth. Analysts see prices grinding higher as physical balances tighten, with WTI prices averaging $45/bbl. in 2016 and $55/bbl. in 2017, but volatility will remain elevated. Global petroleum demand is expected to advance by roughly 1.3 million barrels per day (MMbpd) in 2016 with roughly half of that driven by China and India, slowing slightly to 1.1 MMbpd in 2017 as prices rise and some of the lower-hanging demand potential in low-income countries is exhausted.

Global supply growth will remain constrained as non-OPEC production contractions offset OPEC output gains. While production declines are most dramatic in the U.S. shale patch, non-OPEC ex U.S. output is also on a clear downward trajectory adversely impacted by natural declines and the lackluster appetite for upstream investment globally.

In the near term, the outlook for U.S. shale production continues to dominate headlines and analyst attention. Some argue that U.S. shale producers have supplanted Saudi Arabia as the new source of global swing supply due to tight.

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