A 20% rally for oil — by December?

Yes, the unloved commodity is poised for a big rally in the second half of the year, as the market finally starts to make a dent in supplies, according to UBS commodity analyst Giovanni Staunovo.

Staunovo’s view is that West Texas Intermediate crude oil could rise to $58 a barrel before the end of the year, while Brent is seen jumping to $60. That implies surges of 25% and 22%, respectively.

“Obviously at the moment, that looks far away. But, for me, the market has become too negative,” he said.

“My main view is based on [a forecast] that supply growth will lag behind demand growth in the third quarter and that we should see large inventory declines,” Staunovo said.

That means that when inventories go down, prices usually go up.

To combat the supply issue, the Organization of the Petroleum Exporting Countries and a group of non-cartel members have agreed to cut production by 1.8 million barrels a day until the end of the first quarter of 2018.

U.S. :

You’ve had reports indicating [the U.S.] can even produce at $20 a barrel. But let’s see if last week’s rig count is a start of a trend or not — if it’s the start of a trend it shows that they also have some issues producing at these price levels,” he said.

Baker Hughes data last Friday showed that the number of active rigs drilling for oil declined for the first time in 24 weeks.

“You’ve had reports indicating [the U.S.] can even produce at $20 a barrel. But let’s see if last week’s rig count is a start of a trend or not — if it’s the start of a trend it shows that they also have some issues producing at these price levels,” he said.

Source: Bloomberg Pro Terminal

Junior Trader Stefan Panteleev

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