Oil is expected to swoon again in the weeks ahead but should eventually settle greater than current levels sometime next year, says TD Economics in its latest update on crude prices.
“There\’s considerable risk for an additional leg down in prices within the coming months,” Dina Ignjatovic, an economist in the bank, said in a note to clients.
“Overall, we suspect that expectations for an improvement in market dynamics will help to keep the WTI benchmark hovering around its current degree of US$60 per barrel soon, before heading higher to an average of US$70 per barrel in 2016.”
Ignjatovic said OPEC’s decision to leave output quota unchanged at its recent mid-year meeting is helping drive a larger “wedge between supply and demand” as the U.S. also is constantly on the pump out oil at elevated rates.
U.S. output must start to ease within the second half of the year, however, and continue falling next year from insufficient investment, she said.
Oil production south of the border has continued to ride the momentum of previous investments, Ignjatovic said, but rig counts there has been cut in half and really should translate into lower production levels.
“This would be the case eventually, however it will take time for you to show up in production numbers because of the increased productivity of rigs along with the higher initial production rates and steeper decline curves C specially when drilling for shale oil,” she wrote.