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Midyear Outlook: Top-Down View

By Elliott H. Gue on Jul. 14, 2017

At the end of 2016, Wall Street analysts’ median forecast called for West Texas Intermediate (WTI) to average $56 per barrel in the third quarter of 2017 and for Brent to approach $60 per barrel by early 2018.

Whereas most investors cheered OPEC, Russia and a handful of other oil-producing countries’ “historic” agreement to cut output, we took a less sanguine outlook in an Alert issued on Dec. 12, 2016:

OPEC would lose credibility next year as the regulator of the global oil market. Meanwhile, WTI will range between $40 and $60 per barrel for at least the next two to three years. In the near term, we continue to expect WTI to tumble to less than $40 per barrel, once these realities become apparent.

In subsequent writings, we called for oil prices to spend much of the next two years between $45 and $55 per barrel, with spikes outside that range ultimately proving to be relatively short-lived.

This macro view has played out thus far, with sentiment on the efficacy of OPEC’s production cut beginning to sour in March, reflecting concerns about the rapid growth in US oil output in the first half of 2017. Against this backdrop, WTI tumbled to about $42 per barrel in June, before enjoying a modest oversold bounce.

With second-quarter earnings season set to begin in earnest later this month, we update take advantage of the pause before the deluge to review and update our outlooks for commodity prices and energy stocks.

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