The price of a barrel of Brent has already recovered to around $63, up $17 from its January low of $46. The cost of the traditional US benchmark, WTI, has risen to $56, up $13 from its March low of $43. “We had expected prices to recover, but these latest figures have already topped our forecasts of $60 and $55 for Brent and WTI respectively at the end of this year.” – said Capital EconomicsThe most important reason for the recovery is the growing evidence that US oil production is levelling out in response to the previous sharp falls in prices. The financial backdrop has also been more favourable.But there are still substantial downside risks. US supply could quickly rebound in response to the recent recovery in prices. An early sign of this would be a renewed pick up in the number of active rigs. In the meantime, supply from OPEC has continued to climb, even before the potential boost from the easing of Western sanctions on Iran. The financial backdrop could soon deteriorate again.“The upshot is that we still see oil prices grinding only a little higher, towards $70 by end-2017. Our view is therefore that oil prices have indeed bottomed out (three months ago, in the case of Brent), but they should remain low enough to provide a decent boost to global growth.” – adds Capital Economics
The material has been provided by InstaForex Company – www.instaforex.com