Crude oil cratered to a 14-year low on Thursday.
WTI fell by 4% to a 14-year low of $32.10, even crashing below the financial crisis era’s $32.80. Meanwhile, Brent fell 4% and traded as low as $32.17 per barrel.
In notes seen by Business Insider, bullish analysts have been arguing that oil prices will at least somewhat recover by the end of 2016.
However, in a recent research report, Barclays’ J. David Anderson and his team detailed two things that could undermine the bullish case.
First of all, oil bulls have been banking on shrinking non-OPEC, non-US production, but that’s not exactly what has been happening.
“The oil bulls have consistently pointed towards imminent supply declines from non-US/non-OPEC countries, which represents about 40.4 mb/d of global supply (~40%). However, through the first 9 months of 2015, production was
up 1% compared to the prior year, while forecast to decline only modestly in 2016,” the Barclays analysts pointed out.
In fact, out the three biggest swing producers in the non-US, non-OPEC category (Russia, Brazil, and Mexico), only Mexico has seen production fall to date. Meanwhile, Russia has ramped up production to post-Soviet highs.
Still, the Barclays team concedes that “the corruption scandal engulfing the Brazilian energy industry could be a bullish wild card depending on the impact to deepwater development scheduled to come on over the next 5-10 years.”
The second thing that the analysts point out is that oil bulls might be overestimating the global demand for oil in the future.
The bulls have argued that strong global demand will be one of the primary drivers behind the oil’s rebalancing.
However, the Barclays’ team suggests that these bullish projections could be too bullish as they are higher than those made by the IEA, EIA, and OPEC, which see global oil demand increasing by about 1.3 mb/d, according to stats cited by the team.
“We don’t really have much to add here … other than to note the oil bull thesis has been for demand to be greater than 1.5 mb/d,” they concluded.
As an end note, we should mention that none of this is solid evidence in either direction.
After all, if we’ve learned anything from the last year, it’s that no one really knows what’s going to happen with oil next.