According to the EIA, the average price of Brent oil in 2016 is expected to be somewhere around $56 per barrel (against $53 per barrel in 2015). Still, the agency warns that this prediction is unreliable since the oil market is probably going to be pretty volatile next year.
Apparently, the situation will depend on multiple major factors including the oil export volume offered by Iran once it goes back to the global market of crude oil in the near future as soon as the Western sanctions are completely canceled. U.S. oil export and OPEC quotas are going to be on the list of other major factor on the side of oil supply. Without any doubt the global demand for crude oil is going to be influencing the market and the prices as well.
Oil prices will also affect the geopolitical factors in the Middle East – the long-lasting confrontation between Saudi Arabia and Iran - the 2 major oil exporters in the region. All major oil exporters are just urging the others to start cutting down their production of crude oil but don’t seem to take any practical steps themselves. Nobody wants to be the first one cutting oil production since the market share is at stake. Experts say that OPEC is not planning to cut down its oil production at least until the next OPEC summit in mid 2016. Given the expanding oversupply and lagging demand as well as tougher competition for the market share and some other factors, the bias remain bearish, which means that doomsday scenarios for crude oil are more likely to manifest themselves than more optimistic ones.
Even though Russian and some other oil exporters based their 2016 budgets on much higher oil prices than they are now ($50/b against the current prices of $35/b-$36/b), the $50/b will be very hard to reach and consolidate above given the factors mentioned above. The thing is that the downward pressure is only going to get lore intense. Yet there is no reason to expect a boost in the global demand for crude oil. The thing is that China, the second largest economy in the world, is currently slowing down and getting itself reoriented from exports to domestic consumptions, which means lower production and consequently lower demand for crude oil and other commodities.
That is why oil exporters like Russia start facing the reality and making more likely expectations. In particular, Putin’s administration says that Russian is getting prepared for a long-term period of low oil prices under $40/b. The period may last much longer than expected. Other Russian politicians understand that the downtrend may well be dominating the oil market in 2016 and they are uncertain and worried about the future of the oil market.
Back in 2014, Bloomberg experts predicted that oil prices may drop below $40/b, which is the case. This time they also say that the situation is unlikely to change in 2016. Moody’s experts also downgraded their oil forecast for 2016 from $53/b all the way down to $43/b. So, the bias is clearly bearish but some experts still believe in higher oil prices. This remains to be seen…
