Oil: Potential upside in prices is more limited – Deutsche Bank

Sebastien Galy, Macro strategist at Deutsche Bank, notes that the oil prices have steadily recovered since the US election but its dynamics are increasingly less favorable.

Key Quotes

“OPEC production cuts drove oil prices higher leaving speculator positioning close to historical highs at a time when the IEA finally projects an increase in US shale production. Rising production or expectation thereof should eventually cap the potential upside in oil prices. The supply takes time to increase as it involves exploration, drilling and extraction.”

“Since May 2016, the Baker Hughes rig count has steadily increased at a fairly constant pace from very low levels with likely more difficulty in financing such projects than in the past. Commodity strategy’s onshore model-implied forecast shows a rapid acceleration in crude oil supply that becomes sizable in the second half of 2017. They expect the WTI to average around fifty five dollars in 2017.”