Our Oil Price Outlook
The stage is still set for a long-term recovery, but near-term risk is elevated.
The downward pressure on oil prices has continued unabated in the past few weeks, raising the same critical issues for investors trying to find value and understand downside risks amid the current industry crisis. We remain convinced that a handful of compelling opportunities exist for long-term investors. However, tremendous uncertainty exists as to how oil prices will trend until industry fundamentals improve, which is likely to be a drawn-out process that doesn't begin until the second half of 2016. Accordingly, investors should be discriminating in their stock-picking and prepared to weather additional volatility.
The past few weeks have seen multiple negative developments with respect to the near-term outlook for oil prices: OPEC maintaining current production levels, Iran announcing its intention to bring new supply on line sooner than previously expected, and U.S. output being revised higher. Taken together, the coming six months now look worse, and continued inventory builds through the first half of 2016 could further pressure oil prices.