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Crude oil prices to rally to $47/bbl by midyear: BofA Merrill Lynch

April 2016

April 10, 2016 | 13:30 | Dubai | London

The global supply glut that brought oil prices down from $115 to $27/bbl in the past seven quarters started off with large crude oil inventory builds in the US. The oil market is now poised to rebalance in the next six quarters, and total petroleum stocks should start to draw, a report by Bank of America Merrill Lynch has said.

However, crude oil inventories could initially decline at a faster rate than product stocks, suggesting that Brent prices may recover faster than gasoline or diesel. The recent shutdown of the 590 thousand b/d Keystone pipeline that carries Canadian crude into the Midwest as well as North Sea field maintenance could both exacerbate this trend. “As crude stocks recede from critically high levels, we continue to expect Brent crude prices to rally to $47/bbl by midyear,” the report added. Global oil demand grew by 1.7 million b/d YoY in 2015, the second strongest yearly growth in a decade, while gasoline showed the strongest demand growth among all the products, up 0.8 million b/d YoY in 2015, the strongest yearly increase ever!

“We see total oil stocks (crude & products) starting to draw in 4Q16 as global demand catches up with falling supply and the market starts to rebalance. Yet, crude oil stocks are already drawing seasonally as refiners return from maintenance,” BofA Merrill Lynch said, adding, “As petroleum stocks start to draw over the next few months, we would expect crude oil prices to lead the rally, leading to firmer timespreads.”

 

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