Goldman Sachs Lowered WTI and Brent Price Forecast
Will the Crude Oil Bull Market Rally Continue?
Crude oil price rally since lows in February 2016
Crude oil prices have rallied more than 45% since the low in February 2016. In contrast, crude oil prices have fallen by 65% since June 2014. Crude oil prices have rallied due to an oil producer meeting on February 16, 2016, falling non-OPEC production, and slowing US crude oil rigs. Read more about that in the previous part of the series.
Crucial support and resistance
The expectation of slowing US crude oil production could benefit crude oil prices if demand remains steady. The next resistance for crude oil prices is seen at $45 per barrel. Prices tested this level in October 2015. On the other hand, expectations of rising crude oil production from Iran would limit upside for crude oil prices. The key support for crude oil prices is seen at $25 per barrel. Prices tested this mark in 2003.
Crude oil price estimates
Goldman Sachs (GS) lowered crude oil price forecasts for 2016 and 2017. The bank reported that lower crude oil prices in 2016 and 2017 could narrow the supply and demand gap. The rise in crude oil prices between $50 and $60 per barrel could result in US shale oil producers scaling up production. Goldman Sachs forecasts that Brent crude oil prices will average $39 per barrel in 2016 and $60 a barrel in 2017. It previously forecasted that Brent oil prices could average $45 and $62 a barrel, respectively. The bank also lowered the WTI (West Texas Intermediate) crude oil price forecast by $7 to $38 per barrel in 2016 and by $2 to $58 per barrel in 2017.
PSW Investments forecasts that crude oil prices could average $35–$45 per barrel in 2016. BMI Research expects that Brent and WTI could average $40 per barrel and $39.50 per barrel, respectively, in 2016.
The recent surge in crude oil prices will benefit oil and gas exploration and production companies like Range Resources (RRC), WPX Energy (WPX), Halcón Resources (HK), and Sanchez Energy (SN).
The uncertainty in the oil market also influences ETFs and ETNs like the iShares U.S. Energy ETF (IYE), the iShares U.S. Oil Equipment & Services ETF (IEZ), the Direxion Daily Energy Bull 3x Shares ETF (ERX), the VelocityShares 3x Inverse Crude Oil ETN (DWTI), and the VelocityShares 3x Long Crude Oil ETN (UWTI).
Read the next part of the series to find out how hedge funds are playing the crude oil market.
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