WoodMac: $60 Barrel Forecast Hinges on Greece Exit, China Market Trouble

Wood Mackenzie has forecast China’s oil demand to rise by around 400,000 bpd in 2015 to 11.1 million bpd. This outlook is based on a forecast of seven percent GDP growth this year, implying a managed slowdown by the Chinese government in pursuit of its goal of economic reform. However, the recent decline in China’s equity market poses a risk to Wood Mackenzie’s Chinese demand outlook.

The recent sharp correction by the Shanghai Composite following a bully rally over the past year has injected fear into the community and is likely to impact consumer spending, albeit minimally in Wood Mackenzie’s view. The shock could affect the expected recovery of car sales and associated fuel demand growth in China.

“As a result, diesel and petrochemical feedstock demand growth would be at risk, as they are closely linked with the investment in the infrastructure and petrochemical sectors, although much of this investment will be somewhat immune to the equity crash,” said Wood Mackenzie.  

Concerned about sustained weakness in its economy, the Chinese government recently has slashed interest rates and bank reserve ratio requirements, and infrastructure spending programs have been accelerated. Wood Mackenzie’s July 2 forecast took into account expected Chinese growth for gasoline due to more cars on China’s roads, particularly SUVs. It also takes into account a projected slowdown in diesel for the rest of 2015.

One positive effect of China’s equity market slump is that investment has shifted into the nation’s real estate sector, providing some support for recent stabilization of China’s house prices. Oil demand also could get an additional boost provided that the government implements more stimulus policies to stabilize Chinese economic growth, Wood Mackenzie noted.

Assuming that negotiators meet the July 10 deadline of an agreement on Iran sanctions, indicators support Wood Mackenzie’s view that sanctions against Iran’s oil industry will be lifted in stages, with 2016 oil production gains of 220,000 bpd in average annual terms and growth of 135,000 bpd in 2017 to an average 3.1 million bpd.

“Despite the lack of an immediate impact on Iran’s crude oil exports in 2015, the announcement of a deal is likely to weigh on oil prices in the third quarter,” Wood Mackenzie said. Should a deal not be reached or be defeated by U.S. Congress, the oil market will price in the implications of continued sanctions, which means less oil supply in late 2015 and 2016, providing upward oil price pressure. The oil market also could react to additional actions against Iran to curtail its nuclear program.


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dgg  |  July 11, 2015
Great, I wonder what their price forecast in 2014 was? I doubt it was 60 dollars. I am sure this time all the analysis has got it right though!


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