Is Raymond James' $80 Oil Forecast Realistic?

After a two-year slump, the global oil market is finally showing signs of a rebound. While some analysts remain sceptical, American diversified financial services company Raymond James & Associates is maintaining that the jump to over US$50 a barrel is just the beginning of the price spike.

"When oil drilling activity collapses, oil supply goes down too!" writes Raymond James. "Amazing, huh?"

A trio of factors at play

In a note sent to clients, a team of analysts fronted by J. Marshall Adkins predicted that West Texas Intermediate will jump to around US$80 a barrel by the end of 2017.

"Over the past few months, we've gained even more confidence that tightening global oil supply/demand dynamics will support a much higher level of oil prices in 2017," justifies the team. "We continue to believe that 2017 WTI oil prices will average about $30/barrel higher than current futures strip prices would indicate."

So what prompted the high profile company to make such a buoyant call? The team cited three key reasons, all intrinsically linked to global supply.

• A global production drop

Primarily, analysts forecast a significant drop in oil production outside the USA. This will result in daily counts falling by 400,000 barrels in 2017. Key regions set to experience organic declines include China, Columbia, Angola and Mexico.

• Unplanned outages

Adkins also asserts that thanks to mass unplanned supply outages that will likely continue to plague producers in 2017, global supply will drop by a further 300,000 barrels per day.

• Failure to launch

The third and final factor highlights the fact that American shale producers won’t be able to kick-start action on DUCs (drilled uncompleted wells) due to limited resources and labour availability.

Combine these three key supply curbing factors with heightened global demand for oil, and the US$80 a barrel figure doesn’t seem so farfetched.

"These newer oil supply/demand estimates are meaningfully more bullish than at the beginning of the year," writes Adkins. "Our previous price forecast was considerably more bullish than current Street consensus, and our new forecast is even more so."

As far as Raymond James and its US$80 a barrel prediction is concerned, the green energy revolution is still a long way off. Yet not all experts agree. ‘Can fossil fuels and green energy work hand-in-hand?’ offers exclusive insight from Professor Dr. Gioia Falcone, Head of the Oil and Gas Engineering Centre at Cranfield University. She explores the renewables insurgency, the continued global reliance on fossil fuels, and the role Cranfield University is playing in merging the two.