Oil Prices have Additional Room for Rebound, Brent Crude Likely to Average Usd46/bbl in Q4 2016

Oil Prices have Additional Room for Rebound, Brent Crude Likely to Average Usd46/bbl in Q4 2016

The drop in oil price after the Doha talks failed to come to an agreement regarding freezing oil output was for a short period of time. The price of Brent crude had reached more than USD 43/bbl this morning, the same level at which the market closed on Friday.

The recovery of oil price shows that the talks on output freeze have not been much of importance to the 50% rally in prices last month, according to Danske Bank. Also, another effort for discussion before the OPEC’s meeting on 2 June is expected to be futile, noted Danske Bank. All the oil producers that participated in the Doha talk are pumping oil at almost full capacity and are unlikely to boost capacity significantly in the near future.

Therefore, unless the discussion of absolute reductions in oil productions are brought forward, their control on oil price will be minimal, said Danske Bank. Oil prices have further room for rebound, but the thrust should be mainly from the demand side that has been the vital factor in raising oil prices from the lows in early- February, according to Danske Bank. The global economic growth outlook is expected to rebound further.

The recent improvement in the US manufacturing sector has mainly supported that. Also, the signs that China’s construction activity have begun improving and a continued depreciation of the USD to help oil demand and push oil prices higher have also supported the outlook for global growth.

Meanwhile, if the UK votes to exit EU in June, it might be a drag on European growth and pause further rebound in oil prices for a brief period of time. “We still look for the price on Brent crude to average USD46/bbl in Q4 16 and USD52/bbl in 2017”, said Danske Bank.

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