Why oil is headed to $70 a barrel


Last week, the price of a barrel of West Texas Intermediate crude oil exceeded $50 for the first time since July. In six to 12 months, we believe higher prices should be here to stay.

The market is oversupplied, and oil may experience relapses on a short-term view. Nevertheless, it is reasonable to suppose that, a year from now, when we expect the oil market to be balanced, the Brent crude price may trade at $72 and WTI at $67.

Last week's price rise, totaling roughly 10 percent, was initiated by the large drop in U.S. oil rigs in early October. U.S. oil-directed rigs fell to a five-year low of 614 a few weeks ago, according to Baker Hughes, and then to 605 on Friday.

Further, the U.S. Energy Information Administration estimates that U.S. crude production dropped by 120,000 barrels per day to a 12-month low of 9.01 million barrels per day in September from August. The EIA also raised its oil-demand growth forecasts for 2015 and 2016, while cutting 2015 non-OPEC supply growth. U.S. oil demand continued to expand at a solid pace, up 3.5 percent year-on-year to 19.98 million barrels per day in July. (by Giovanni Staunovo, commodities analyst at UBS Wealth Management, CNBC)