A massive global stockpile of oil could mean trouble ahead for the global crude market, according to Barclays.
Crude oil prices dropped to a two month low on Thursday, after the Energy Information Administration reported a smaller-than-expected decrease in oil stockpiles. That may be a canary in the coalmine, a top energy market watcher explained.
"For the last 6 quarters there's been this discrepancy between global supply and global demand," Michael Cohen, head of energy commodities research at Barclays, said last week on CNBC's "Futures Now. "
Cohen said Barclays is bearish on oil for the next six to eight months, because the current stockpile could increase in an economic downturn, likely to drive prices lower. In the summer months, increased travel often increases the demand for gasoline, and drags up crude oil by default. Yet once that season ends, inventory levels may continue to rise.
Looking at a chart of the expected crude oil supply compared with the current amount, Cohen said the disconnect is staggering. The chart accounts for oil supply from the 38 countries in the Organization for Economic Cooperation and Development (OECD), which includes the U.S., U.K., France, Germany and Canada, among others.
During the recent financial crisis, crude production overhang was 138 million barrels. Now, the overhang is twice that, at 383 million barrels among the OECD, Cohen said.
For those reasons and several others, analysts believe oil's price gains are likely to be muted through the end of the year after nearly doubling since mid-February. Bank of America-Merrill Lynch only sees the commodity hitting $53 per barrel by year's end, while Capital Economics doesn't expect a breakout above $50 at all in 2016. Last week, Brent crude ended trading under $47.
Other points of concern contributing to Barclays' bearish view are fragile global growth, and Chinese overproduction.
"Once the [Chinese] government believes they have filled them sufficiently, then that excess inventory and that excess demand for inventory building will lead to extra weight on the market," Cohen said.
With all this in play, Cohen thinks oil prices will go further down in the third quarter of this year before staging a rebound around the fourth quarter of 2016, and turning bullish in 2017.
"Things on the supply and demand side don't happen overnight. It's going to take time for shale to be producing at a level rate rather than declining," Cohen said. "When the market starts to pay attention to that reality, that we need shale to begin to grow again, then we should see prices move higher."
Correction: An earlier version mis-characterized Cohen's timeline for when oil prices would stage a rebound.