WTI crude may hit $20 a barrel, says NBAD

West Texas Intermediate (WTI) crude is expected to trade between $25-$45 per barrel in 2016, but could drop to $20 as the global supply glut continues to worsen, National Bank of Abu Dhabi said in its investment outlook for 2016.

“Oil is likely to be highly volatile in a $25-45 range on WTI, capped by shale and forward selling. The end of OPEC ‘as we know it’ will see a continuation of revenue maximization via maximum production by major oil producers,” NBAD said.

Crude prices fell to a 12-year low earlier this year on sluggish a global economic outlook, especially in China, and oversupply. The oil price outlook has worsened as Iran prepares to join the market after economic sanctions were lifted in January.  

Key OPEC producers and Russia agreed this month to freeze production at January levels, but it did little to boost prices.

“Producers remain under-hedged; for 2016 they were only 18 percent forward-sold, vs. an average of 30 percent in 2013-15,” according to the report. “This was recently at a tiny 4 percent for 2017 - this is surely bound to increase, capping prices.”

The US Energy Information Administration (EIA) forecast that WTI will average $38.54 in 2016, while Brent averages $40.15, compared to averages of $48.67 and $52.32 respectively last year, and vs. $29.56 for WTI.

WTI for delivery in December 2019 is priced at $45. The EIA assumes averages of $47 and $50 for WTI and Brent in 2017.

“We agree with the latest EIA forecasts and recommend they be used for investment assumptions, whereas we had thought their higher forecasts for 2016 from last year were too optimistic,” NBAD said.

Write to Abeer Allam at abeer.allam@argaam.com