The United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, have been affected by the global equity sell-off, each falling more than 2.5% over the past week, but some major banks are increasingly bullish on crude.
Supporting the crude oil markets, the expanding global economy has increased demand for commodities and drawn down oil inventories. For instance, according to the Energy Information Administration, U.S. crude stockpiles have declined for the past 10 consecutive weeks and are now at their lowest level since 2015.
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“Goldman Sachs was the latest to give up its skepticism and predict that Brent would reach $80 a barrel within six months. A couple of days earlier, JP Morgan had said that it expected the international benchmark to hit $78 in a few months,” reports OilPrice.com.
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“In mid-January, BofA upped its price forecast on Brent to $64 a barrel, which now doesn’t look bullish enough, compared with what Goldman and JP Morgan expect. Morgan Stanley falls in the middle, predicting that Brent will occasionally touch $70–75 in the first half of this year, stabilizing around $75 a barrel in the third quarter,” according to OilPrice.com.
Meanwhile, the energy industry has grown more efficient after cutting costs in response to the plunge in crude oil prices in previous years, so they are now in a better position to improve revenue at lower oil prices.
Market observers and analysts argue that U.S. energy stocks are in a position to outperform broader equity markets this year, even if oil prices don’t move higher.
“Also, prices were supported by production outages in Libya and Nigeria, and in late 2017, by the suspension of the Forties pipeline in the UK North Sea, as well as by growing optimism about the global economy and crude oil demand,” according to OilPrice.com.
For its part, OPEC remains concerned about the level of production by U.S. shale producers and the cartel is urging its U.S. rivals to pare output to support prices. According to the Energy Information Administration, crude oil product could hit 9.9 million barrels per day in 2018, which surpasses the prior high reached in 1970 of 9.6 million barrels per day.
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