After going just north of $50 a barrel during the day Thursday, U.S. oil prices dipped slightly by the end of the day closing at $49.31. Thursday’s high represented the first time in 7 months crude prices had been above the $50 benchmark.
Whether this means prices will go higher in weeks and months to come is up for debate.
For some, the bump above $50 provided a psychological lift and encouragement to bulls who have enjoyed seeing prices rise to the high 40’s from a low below $30 a barrel earlier this year.
This boost cam in the midst of production disruptions and pipeline problems in Canada and Africa that caused supply to be cut nearly 3.4 million barrels a day in May. Those supply cuts were widely seen as instrumental in bringing the market into balance following a very long period of oversupply.
Still prices were not expected to rise significantly or be part of an extended rally. Oil Price Information Service analyst Tom Kloza told USA Today, "I wouldn’t get too excited about" breaking the $50 barrier.
Kloza added, "We’ve moved more quickly from $26 to $50 a barrel than most pundits might have thought, but that has occurred largely because of production losses in the Canadian Oil Sands, Libya, Nigeria, Kurdistan and even Colombia, with attrition in U.S. shale."
Those looking for reasons to celebrate have company. Oil giant, BP Plc (NYSE:BPD) revised its price assumption up for next year to between $50 and $55 according to the BBC. Meanwhile, Goldman Sachs (NYSE:GSF) brokers forecast prices around $50 a barrel for the rest of 2016, rising to $60 by the end of 2017.
The Sweet Spot
From an economic standpoint, oil between $50 and $60 a barrel hits a sweet spot that allows oil producers and related companies to begin to recover but doesn’t hurt consumers in the pocketbook in the same way oil at $100 a barrel did.
Such a move, while it wouldn’t spur oil producers to spend on major projects or exploration would at least provide some counteraction to layoffs and financial defaults in the energy industry.
Importantly, if oil were to remain in that range for an extended period, the Federal Reserve would be able to increase interest rates but keep them low enough to maintain growth.
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The Big QuestionThe question, of course, is ‘what’s going to happen?’ Will oil prices go up, stay the same or go down for the balance of 2016? While nobody knows for sure, the guessing game continues.
Predictions about the future price of oil literally range from $10 a barrel to $100 a barrel. While neither extreme is likely, even the most thoughtful predictions are wide ranging.
Paris bank Natixis SA, for example, said recently thanks to predicted Iranian production increases, it expected crude oil to average $38 a barrel in Q4.
On the bullish side, the afore-mentioned Goldman Sachs, based on what it believes would be major supply disruptions in Venezuela, Nigeria and China has made that bold call for $50 oil for the balance of 2016.
As the Huffington Post advises, investors simply have to be ready however it goes.