LONDON: Crude oil prices are likely to bottom out in the first half of 2015, until a possible slowdown in US shale production counters a supply glut exacerbated by Opec’s decision not to cut output, a Reuters monthly survey showed.
Opec’s agreement last month to stand pat on output meant the onus for any supply cutbacks was now on non-Opec producers, primarily led by US shale oil, analysts said. “Oil prices will be lower, making shale oil production less attractive for investments, which are necessary to keep shale oil production growing,” Commerzbank’s Carsten Fritsch said.
Oil is seen recovering in the second half as non-Opec production responds to lower prices, while demand picks up in the course of the year, the poll showed.
The survey of 30 economists and analysts projected Brent to average $74.00 a barrel next year and $80.30 in 2016. The forecast for 2015 is $8.50 below the average projection in the previous Reuters poll. The November poll number was down $11.20 from October, marking the biggest downgrade in average forecasts since the 2008 economic downturn. Brent has averaged $100.57 so far this year.
“In terms of the floor price, we think $60 per barrel will be the level at which fast-rising U.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 U.S. shale oil producers. “The lag in oil production response from existing wells from the U.S. suggests that only the marginal oil projects will be discouraged at this stage,” Vyanne Lai of National Australia Bank said. The poll forecast US light crude would average $68.70 a barrel next year, and $74.90 in 2016. US crude has averaged $93.99 so far in 2014.
Meanwhile, oil prices resumed their downward march, doubling back on the biggest one-day gain in over two years, after Saudi Arabia’s Oil Minister Ali bin Ibrahim Al Nuaimi said Opec would not cut production at any price. US crude’s front-month contract was down $1.70, nearly 3 percent, at $55.43 barrel by 1635 GMT after touching a session low at $55.37. Brent fell $1.33, or more than 2 percent, to $60.05 after hitting session bottom at $59.93.
Reuters
