Oil market will not begin to rebalance until late 2017, EIA says

The oil market will not begin to re-balance until late 2017, the US government said on Wednesday.

Crude oil inventories would continue to rise in 2016, by 700,000 barrels per day, following an increase of 1.9m bpd in 2015, the Department of Energy's statistical arm - Energy Information Administration - said in its Short-Term Energy Outlook published on Wednesday.

Stockpiles would not begin to be drawn until the third quarter of 2017, after 14 consecutive quarters of builds, the EIA added.

That would keep oil prices low, with government statisticians predicting Brent crude oil prices would average $40 per barrel in 2016 and $50 in 2017.

Those for West Texas Intermediate were expected to be two dollars per barrel below those for Brent in 2016 and three dollars beneath Brent in the following year.

Nonetheless, the EIA said there was still "high uncertainty" regarding the outlook for crude prices.

Based on recent prices for futures and options contracts for April 2016 delivery, the price of crude was expected to be anywhere from $25 to $56 per barrel.

"Recent price declines for major commodities are now greater than in any crisis of the past 30 years and speculative positioning is even more negative than it was in the depths of the 2008-09 financial crisis. That suggests that although the price outlook is weaker than it was previously, the road ahead is still likely to be a bumpy one," Barclays Research said in a research note sent to clients on 11 January.

In the opinion of the author of the report, Kevin Norrish, the main reason behind the weakness in prices were a tranche of "very poor economic data", mostly centred on the US.

On 13 January, UBS became the latest investment bank to mark down its oil price forecast.

UBS analyst Myles Allsop cut his 2016 and 2017 price for forecasts for Brent crude by approximately 25% to $42 and $55 a barrel each, respectively.

Allsop also lowered his 2018 forecast by 7% to $70 per barrel.

Natural gas prices would recover in the medium-term to $3.25/MMBtu tempered by slower demand growth and falling supply costs.