Oil prices could spike 50% higher in 2016: Analyst

Economics behind oil: Pro
Economics behind oil: Pro   

The ever-declining U.S. oil rig count should really start to take a bite out of the oversupply problem this year, KLR Group's John Gerdes said Thursday, predicting depressed crude prices could soon begin to move sharply higher.

Gerdes sees West Texas Intermediate crude hitting $47 per barrel in 2016, basically a 50 percent increase from current levels of about $31. Looking out to 2018, he sees prices at $80 to $85 per barrel.

"What this industry will need is more of an $80 to $80-plus environment to drive some modest degree of return. And the mechanisms for that are being set in motion with these lower levels of activity to suggest the supply adjustments should progress," Gerdes told CNBC's "Squawk Box."

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Oil prices were bouncing off 12-year lows in early action Thursday. U.S. crude was trading at a rare premium to the global benchmark Brent, which has been weighed down by the potential for a flood of supply from Iran with sanctions relief possibly coming as early as Friday.

"These supply adjustments take many, many quarters. They take years. We're one year into a three-year adjustment process," said Gerdes, head of research for his investment bank, which is focused on the natural resources sector.

"The U.S. industry is effectively uneconomic at sub-$60 [per barrel] and we're sitting at $30," he said.

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But the production cuts by American energy companies are setting up an overcorrection of the system in the "other direction" that's needed to flip the glut script, he added. "We do think with a reasonable probability the basing effect does happen here in the first half of the year."

Once supply and demand balances, he said, it's not that easy to turn the crude spigots back on. "When you redeploy capital, that lag effect is in place again going the other direction."

That lag should produce an environment in which prices could move higher into next year and into 2018, Gerdes said.

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