In a recent report, Wells Fargo analysts gave an update on their outlook for crude oil. The report also included updated crack spread numbers and differentials.
Oil Finding A Bottom?
One of the more interesting parts of the analysis for oil investors was Wells Fargo analysts’ take on where oil currently stands in its bottoming process. Falling rig count numbers and oil’s recent multi-week rally have some oil investors hopeful that for oil will continue its recent positive momentum. However, Wells Fargo analysts disagree.
“We remain in the camp that this oil price move is more of a head-fake and is part of the crude oil bottoming process. We fully expect to see crude retreat once more before we’ll be convinced the bottom has been set,” analysts explained in the report.
For now, oil prices will likely continue to be volatile, as oil and energy ETFs such as the United States Oil Fund, LP USO 0.83%, the United States 12 Month Oil Fund, LP USL 0.76% and Energy Select SPDR Fund XLE 0.47% have already endured wild price swings so far in 2015.
Recovery Timetable
Analysts believe that crude oil prices will begin to recover sometime in the second half of 2015 into 2016.
In four previous crashes, the price of oil has typically taken two to four months to firmly establish a bottom. Analysts point out that WTI’s low point occurred as recently as January 28 and advise investors to remain patient for now.
Updated Spreads
Domestic 3:2:1 crack spreads were on the rise this past week, led by West Coast and Mid-Continent spreads. The WTI/Maya differential shrank the most during a mixed week for differentials, and the WTI/Brent differential saw the largest widening.
Forecasts
In the report, Wells Fargo lowered its 2015 forecast for WTI from $60.88 per barrel to $58.13. Wells also lowered its 2016 WTI price forecast from $73 to $72 per barrel.
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