Analyst Predicts Oil Price Rise On Supply Outage and China’s Soaring Demand

According to an energy analyst, supply outages and growing demand from China will likely drive up crude oil price in the coming months.

Jefferies’ Jason Gammel told CNBC the oil market had swung from oversupply to undersupply in April due to disruptions in production in Nigeria and Alberta, Canada, taking around two million barrels per day out of the market.

“I think with continued demand growth over the course of this year and continued declines in non-OPEC supply that we are already seeing in places like the United States, the market actually comes into much better balance by the end of the third quarter and that’s the stage for fundamental price recovery,” he told CNBC in London.

As global crude output fell, demand from China, a massive consumer of energy , leaped in April.

Its crude imports reached eight million barrels a day, up 7.6 per cent from a year earlier, according to official Chinese data

“In the case of China, what is encouraging is that their imports are still very high, because I really think that, from a supply-and-demand standpoint, you need to have strong Chinese demand growth in order for the market to become more balanced by the end of the year,” Gammel said.

According to a UBS commodity strategists’, Brent crude will trade at around $49 per barrel in the fourth quarter of 2016 and then rally further to average $55 through 2017.

They added that a recovery in WTI oil prices to above $50 per barrel would incentivise renewed U.S. energy exploration and this projected increase in supply would limit price upside.

Gammel agreed $50-plus prices would spur U.S. rigs back online, but said this increase would be insufficient to offset lower output from shale gas wells. “I think if the U.S. rig count doesn’t go above, let’s say, 500, that the U.S. production is going to continue to decline,” he added.