It’s been quite a year for oil prices.
Prices plunged from $US100 in late 2014, recovered slightly in early summer, and then now they have tumbled down to around $US44 per barrel.
Currently, some experts think that oil could fall even lower. Goldman Sachs analysts led by Jeffrey Currie recently released a note suggests that oil could potentially drop to $US20 per barrel.
Meanwhile, others offered a slight more optimistic forecast. In a recent note to clients, Morgan Stanley’s Adam Longson shared a chart showing how his research team sees the oil story playing out through 2018.
“This is a supply-driven downturn, which typically take longer to resolve,” Longson wrote. “Most large price declines over the past 25 years were demand shocks, which can resolve relatively quickly. The current downturn is supply- driven, similar to 1986, although we don’t see a 10+ year downturn.”
Longson and his team outlined 4 specific phases in this recovery:
- Today — mid 2016: oversupply and oil recession. (Oil teetering between $US45 to $US50.)
- Q4 2016: initial rebalancing and recovery. (Oil increasing from $US60 to $US65)
- Early 2017: recovery. (Oil around $US75)
- 2018: normalization. (Oil around $US85)
As for after 2018, Longson simply writes “?”.
“Given long lead time projects, demand elasticity and lack of OPEC intervention, supply returns as demand slows causing another downturn,” he adds.
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