Barclays Head of commodities: Oil is trading up
Oil’s current supply and demand equilibrium is the dominating catalyst, according to Barclays head of commodities research Michael Cohen. Meanwhile, non-OPEC oil producers have begun to adjust to an oversupplied market.
“We’ve seen production coming off 50,000; 100,000 barrels a day — every single month,” Michael Cohen said on Tuesday. “We’ve seen really strong consumer-led demand for airlines and also for gasoline,” he added.
Still, “industrial demand is coming off pretty steeply because of this reduction in drilling activity, reduction in rail activity,” he added.
In a similar vein, a strike in Kuwait has slashed the country’s crude oil production by more than half, in turn driving the price of black gold higher.
Mr. Cohen expects unplanned outages to continue to impact the oil market, but the strike in Kuwait will not last too long, he pointed out.
The International Energy Agency’s April had reported that both demand and supply in the crude oil sector have declined. The global oil demand is expected by the IEA to ease to around 1.2 million barrels per day in 2016, below the 1.8 mb/d expansion last year. Similarly, the IEA found that global oil supply fell by 0.3 million barrels per day last month to 96.1 mb/d, “with annual gains shrinking to 0.2 mb/d, from 1.7 mb/d a month earlier.”
Nonetheless, Barclays is concerned about crude oil demand cooling this quarter, a factor that will likely keep crude trading in a broad $35 and $45 a barrel range, Cohen said. The investment bank considers that demand will increase once again during the Q4 of 2016 and oil prices could surge to $50 a barrel by the end of the year.
However, the volatility will prompt bankruptcies in the oil and gas sector, Cohen said. “We will see (bankruptcies) again and even more by the end of the year,” he finished.
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