But with oil prices at current levels, this might be an opportunity for investors to pick up cheap futures contracts.
Nannette Hechler-Fayd’herbe, global head of investment strategy & research at Credit Suisse, says her firm will be buyers oil at this price.
“Since the coming up of shale oil in the U.S., (oil) has been caught up in this broad range between $40 and $60 and we are again testing this lower bound. Whether one likes it or not, there are a number of shale producers that are really not going to look very profitable at this moment,” she told CNBC’s Squawk Box on Friday.
“So production is likely at this point to react a bit more than what we have all been expecting in the last half year, Also the inventories are starting to be drawn.”
We saw signs of this earlier in the week, when EIA data on Wednesday showed U.S. crude stockpiles fell by 2.5 million barrels, more than analysts’ expectations of a decrease of 2.1 million barrels.
However, crude inventories total 509.1 million barrels, which is in the upper half of the average range for this time of year, according to the EIA data.
Looking ahead, improving economic conditions in some countries such as Brazil and India will lead to increased oil demand in 2018. Meanwhile, the OPEC production cut deal will last until April 2018 and there is evidence of high compliance among OPEC producers.
Jonathon Rigby, William A. Featherston and Joseph Head, analysts with UBS, predict OPEC may look to taper production cuts or extend the deal in some way to avoid flooding the market in the second quarter of 2018.
“A further roll-over of the agreement could see larger inventory draws in 2018 than we currently forecast, likely worth around $5 per barrel,” they said in a research note published Wednesday.
“Geopolitics and interruption to a medium-sized OPEC producer could add up to $10 per barrel per 0.5 million barrels per day of disruption: Nigerian, Libyan and Venezuelan output remains volatile.”
The analysts predict that, if the market rebalances and U.S. production doesn’t rise too much, oil could settle into a range of $60 to $80 dollars or more, which would represent a premium of at least 25 percent on today’s Brent crude price of around $45 a barrel.