New "behind the scenes" info shows our previous oil price forecast was on the low end...
Oil prices are up 14.5% year to date, with WTI crude oil around $61 a barrel today. But it hasn't been a straight rise for the price of oil in 2015.
The big oil market story for the last several months has been one of supply and demand. Plentiful supply has pressured prices.
"The pundits in the media have advanced a simple translation: The expected rebalancing of the crude oil market, in which supply and demand are equivalent and pricing changes are narrow, has not taken place because there remains too much supply on the market," Money Morning Global Energy Strategist Dr. Kent Moors wrote on June 24.
They blame two culprits, said Moors: Organization of Petroleum Exporting Countries (OPEC) failing to cut production, and continued high U.S. shale oil production.
But Moors knows that global oil demand is surging. That's why his oil price forecast for the rest of 2015 has seen prices climbing into the $70- to $80-per-barrel range.
"The demand for oil is absorbing inventory much more quickly than anticipated," Moors told Money Morning readers on April 8. "Much of the demand surge is driven by pent-up needs from developing industrialization and economic diversification. Some is the result of changing energy trading patterns, and a fair amount is from the simple dynamic that markets use more energy as the price declines."
And recent reports show oil inventories are down.
The U.S. Energy Information Administration reported its official data today at 10:30 a.m. Crude inventory for the week ending June 19 declined 4.93 million barrels, versus the consensus for a draw of 1.68 million barrels. Cushing inventory declined 1.87 million barrels, versus an expected decline of 666,000 barrels.
Last week, the American Petroleum Institute reported a larger than expected 3.2 million decline in U.S. inventories. The industry group's data also showed a 2 million barrel decline at Cushing, Okla., the key trading hub.
Some pundits are still looking for a bigger supply drawdown. But they fail to understand something about the supply-demand balance needed for higher prices ...
"We don't need a shortage for balance in the oil market," Moors said. "While nobody considers a constriction of supply likely (there is currently too much short-term available oil from both the conventional OPEC providers and the new U.S. oil fields), the balance is already here," Moors says.
You see, a pricing floor has already been established. This comes from a few factors - one being that OPEC's current overproduction is unsustainable.
Another - there will be a change to U.S. production levels that is already taking shape. Production flow will start to taper next month.
There's also a big change looming in the energy debt market.
[epom key="ddec3ef33420ef7c9964a4695c349764" redirect="" sourceid="" imported="false"]
All of this has prompted Moors to revisit and revise his oil outlook - upward.
"It seems I may be too conservative in my price readings of $73 to $78 a barrel for West Texas Intermediate (WTI) in New York and $82 to $85 a barrel for Dated Brent in London by the end of the year," Moors explains. "These came in at the very low end of the figures being proposed."
You can read Moors' full analysis for his upwardly revised full year oil price forecast here.
Stay informed on what's going on in the markets by following us on Twitter @moneymorning
Investors: Learn How to Put an Extra $125,000 in Your Pocket
Related Articles: