According to Wells Fargo, crude oil prices have recently dipped, but a turnaround is on the horizon as US oil production is expected to decrease.
Despite starting the year on a positive note, crude-oil returns have now slipped into negative territory. The global benchmark price, Brent crude, has dropped by 3.5%, while the US benchmark price, West Texas Intermediate (WTI), is down by 0.4% year-to-date.
Analysts at Wells Fargo attribute the decline in crude-oil prices to a combination of factors affecting both demand and supply. They noted concerns about a softening global economy affecting demand, as well as worries about potential production increases from major oil producers like OPEC+ and the US.
However, Wells Fargo believes that these demand and supply concerns have already been factored into current crude-oil prices. The bank points out that global crude-oil demand, while weak, is not worsening, and global liquidity is increasing as central banks cut interest rates.
Looking ahead, Wells Fargo anticipates that both OPEC+ and the US are more likely to reduce production rather than increase it, especially with crude oil prices hovering in the $60s and $70s per barrel. OPEC+ has already announced that planned production cuts will not be reversed, and the US is expected to see a slowdown in production growth due to the high cost of opening new shale wells.
In conclusion, Wells Fargo predicts that despite recent softness in crude oil prices, a rebound is imminent. With major oil producers showing little interest in ramping up production at current price levels, the bank expects prices to strengthen in the near future.