Crude oil prices might hit rock bottom in the first half of 2015 until a possible slowdown in US shale production counters the supply glut by OPEC’s decision to not cut output, Reuters monthly survey revealed
However, the prices would be seen recovering in the second half of next year if demand increased during the year, the poll showed.
The Organization of the Petroleum Exporting Countries’ (OPEC) agreement In November last to stand firm on output meant the onus for any supply cutbacks was now on non-OPEC producers, primarily led by US shale oil, analysts said.
Commerzbank analyst Carsten Fritsch said, “Oil prices will be lower, making shale oil production less attractive for investments, which are necessary to keep shale oil production growing.”
The survey of 30 economists and analysts projected Brent to average US$74 a barrel next year and US$80.30 in 2016.
The forecast for 2015 is US$8.50 below the average projection in the previous Reuters poll. The November poll number was down US$11.20 from October this year, marking the biggest downgrade in average forecasts since the 2008 economic downturn.
Brent in December 2014 hit a five-year low below US$60 a barrel, down almost half from peaks reached in June. Brent has averaged US$100.57 so far in 2014.
“In terms of the floor price, we think US$60 per barrel will be the level at which fast-rising USA’s shale oil producers will feel the pinch,” ANZ analyst Natalie Rampono said.
“Supply cuts above this level will be limited to other smaller, high-cost US and Canadian unconventional oil producers. Although we think it will take six to 12 months for these supply cuts to become apparent,” she added.
Some analysts, however, were sceptical whether OPEC’s stand would serve as a deterrent to US shale oil producers.
Vyanne Lai of National Australia Bank said, “The lag in oil production response from existing wells from the USA suggests that only the marginal oil projects will be discouraged at this stage.”
Hannes Loacker of Raiffeisen Bank added that some of the highly leveraged US shale oil producers would face serious trouble. “In the long term, OPEC strategy should pay off for the body as this strategy should lead to higher oil prices from 2016-17 on,” he added.
Raiffeisen was among the most bullish forecasters, projecting Brent to average US$80 a barrel in 2015, and also one of 11 institutions that had participated in the previous poll and retained their outlook since then.
Of the 14 banks polled that have cut their forecasts since the previous month’s survey, Morgan Stanley slashed its projection by US$28 to an average 2015 Brent price of US$70.
ANZ, Bank of America Merrill Lynch, JBC, LBBW and Deutsche Bank also lowered their North Sea crude forecast for 2015 by more than US$15 per barrel.
ABN AMRO had the highest Brent forecast at US$85 for next year, while Nomisma Energia had the lowest at US$59 a barrel.
Brent’s premium to USA crude is expected to narrow to US$5.30 a barrel in 2015 from US$6.68 so far this year and US$10.58 in 2013, the Reuters poll added.
