Energy: Don't Expect a Quick Recovery for Oil Prices

Energy markets have rebounded recently, but much uncertainty remains, meaning near-term oil prices could remain ugly or deteriorate further

David Meats 30 March, 2016 | 3:33PM
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Crude oil prices are well below the levels required to encourage sufficient investment to meet global demand beyond 2017, and our mid-cycle per-barrel price outlook remains at $70 for Brent and $64 for West Texas Intermediate.

But near-term prices could remain ugly or deteriorate further. Back in February a handful of producer countries, including Saudi Arabia and Russia, agreed to freeze output at January 2016 levels to help realign supply and demand. Markets rebounded as a result, but much uncertainty remains, most notably about whether Iran's likely refusal to follow suit will derail the pact or whether actual production in these countries will match agreed-upon levels.

Upstream capital budgets in the United States have fallen sharply again this year as producers struggle to align budgets with cash flows. Reduced investment will translate to stronger output declines. This should help bring global markets back into balance as well but how quickly depends on the success of the production freeze initiative. Either way, it won't happen overnight.

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David Meats  is a senior equity analyst for Morningstar