The epic crash in oil prices could end next year. But before things get better, it could get even worse.
It’s been a catastrophic 18 months for crude oil, which has suffered a dramatic 68% plunge due to a massive supply glut. Oil fell to a fresh seven-year low below $34.50 a barrel on Friday.
The collapse in prices has wreaked havoc on the industry, causing tens of thousands of job losses, a surge in corporate defaults and plunging stock prices.
Many Wall Street oil experts believe that prices will rebound in late 2016. Yet more pain may be inflicted — some say it’s actually needed — before prices bounce higher.
“It’s still a long road ahead. The oversupply problem will be with us for a little while,” said Mike Wittner, global head of oil research at Societe Generale.
Goldman Sachs wagers that crude oil will average $38 a barrel in February. That’s lower than prices were for most of this year.
The problem is that the long-awaited “rebalancing” of the global oil market has yet to happen.
In other words, the world’s supply of oil remains far above its demand. The supply glut was mostly created by skyrocketing American production.
But OPEC, led by Saudi Arabia, has exacerbated the issue by pumping oil ferociously. It’s a strategy designed partly to pressure American producers out of the market.
OPEC declined to cut production when it met earlier this month, reinforcing the idea it’s not coming to the rescue of oil markets.