Analysts of a number of banks suggest that we may have seen the bottom in oil prices. UBS, Société Générale and Citigroup expect a rebound in oil prices in the second half of the year, once the market becomes used to the new supply of from Iran. Citigroup is even going a step further in saying that investors should hold on to their investments, because it might be the best investment of the year.

“Initially, we will see a new wave of supply from Iran, but once the market has digested this effect, prices will stabilize. I think we could see some opportunities in the oil market then. Oil could be the trade of the year, because it is going to have such a broad effect on other financial assets”, Ivan Szpakowski, analyst of Citigroup told Bloomberg last Friday.

Oil price recovery in second half of 2016?

oil-well-teaserThe price of oil dropped by more than 17% this year to a 12-year low of less than $27 a barrel. But in the last few days, we saw a strong rally pushing crude prices above $31 again for both Brent and WTI. The expectation of less economic activity in China, combined with an increasing supply of oil and record high strategic reserves are pushing down the price of crude.

According to UBS analyst Dominic Schnider, the unbalance between supply and demand in the oil market will be solved by a reduction in oil output from US shale producers. Szpakowski shares this long-term view and expects Brent crude to rise to $41 in the third and $52 in the final quarter of this year.

Is this an opportunity to invest in oil? The International Energy Agency (IEA) is not convinced yet. They expect crude prices to remain suppressed in 2016 because of a substantial increase in Iranian oil supply.