Crude-Market Fundamentals Continue to Tighten, but the Recovery Still Has a Ways to Go

Crude markets have tightened a good deal in recent months, as strong oil demand growth and supply issues have pulled forward the industry recovery by about a year compared with the outlook we published in April. Even so, 2017 fundamentals are far from robust from an oil price perspective, and don't appear supportive of prices moving much above the $50 per barrel threshold. Another large uptick in rig additions in the U.S. could be enough to eliminate near-term inventory draws altogether, which is the last thing oil markets need for a sustained price recovery to occur. With this in mind, we are setting our 2017 price forecast for West Texas Intermediate at $50 per barrel, which we believe is sufficient to prevent any further net shale activity increases in the coming quarters.