Crude oil at $50 a barrel was unthinkably cheap just a year ago. Now, it may be too pricey, according to a recent article in Barron's.
"Many analysts and investors adopted a "lower for longer' outlook on oil prices in midsummer and predicted that supply and demand would not come into balance until the second half of 2016 or 2017," the article states. "After rallying to nearly $50 a barrel in October, prices look unlikely to trade above that level again until 2016."
Heating oil demand, a key driver at this time of year, has been subdued due to a mild start to winter in the U.S. and Europe, the article states. "If moderate temperatures persist, stockpiles of heating oil and other distillates will continue to increase, weighing on refinery profits and decreasing demand for crude," the article states. "Goldman Sachs has warned that distillates' storage tanks could reach capacity, helping send oil prices as low as $20 a barrel."
Barron's reports that while U.S. oil production has fallen in recent months, the global crude market remains oversupplied. "Tankers filled with crude have backed up at ports around the world in recent weeks waiting to unload. The current futures market is close to the point at which it becomes profitable to buy oil and store it in a ship to sell later - a sign of a serious glut," the article states. "It's impossible to disregard the amount of oil around," said Al Levine, chief executive of energy brokerage Powerhouse, told Barron's.
The oversupply could get worse in the coming months if Iran floods the market with hundreds of thousands of barrels a day of crude, the article states. At the same time, developed nations are sitting on record-high commercial stockpiles, which should act as a buffer to any supply shock, and some countries, including the U.S., have government-held strategic inventories on top of that.
To read the Barron's article, click here.