Oil Traders Ask How Low Can It Go?
Whether or not monetary policymakers think falling commodity prices are a problem, there is little they can do to influence them. Chinese growth rates matter far more. So do decisions by producers, be it of iron ore or oil, to ramp up or scale back supply. All Yellen, Draghi and their peers can do is try to cope with the resulting fallout with a very limited range of policy tools.
Yesterday, the Energy Information Administration released its weekly data on oil inventories, which showed that commercial crude inventories fell by 4.4 million barrels to 455.3 million last week. An epic buildup in inventories from January through May added to evidence that prices have been pressured by a supply glut from the shale boom.
Concerns about oversupply in the market have sent oil prices even lower in recent weeks, following the 50% crash of last year. Coupled with weakening demand from China, crude oil has declined with other commodities in a magnitude not seen since 2008.
The US crude oil price chart suggests that WTI prices could fluctuate between $44 and $50 per barrel in the near term. Crude oil prices might average $50–$60 per barrel over the long term, according to Goldman Sachs’ estimates. The EIA estimates that WTI crude oil prices will average $55 per barrel in 2015 and $62 per barrel in 2016. Goldman Sachs estimated that crude oil prices could hit $45 per barrel by October 2015. However, oversupply concerns and the appreciating dollar have already dragged crude oil prices lower. IHS Energy, a research and consulting group, estimates that WTI prices could even hit $40 per barrel in the short term. Barclay’s analyst Lynden Branigan reported that Brent crude oil prices could hit $50 per barrel and WTI prices could hit $42.03 per barrel in the short term.