Optimistic Oil Experts Still See Rally as Crude Hits New Lows

Optimistic Oil Experts Still See Rally as Crude Hits New Lows
Oil analysts are, if nothing else, optimists. They're still mostly sunny, looking for a 60% rally by late next year.

(Bloomberg) -- Oil analysts are, if nothing else, optimists.

So much so that no one seemed to see the 60 percent slide in oil prices coming when the commodity was trading at almost $108 a barrel on June 20, 2014. At the time, analysts as a group predicted oil would average about $100 a barrel this quarter and the most pessimistic called for $84, instead of the low $40s it’s languishing at.

Analysts are still mostly sunny, looking for a 60 percent rally by late next year. Even the worst month for oil since 2008 has brought out just a few frowns, as Societe Generale SA and Canadian Imperial Bank of Commerce cut their estimates in the past week by more than $10 a barrel. The prognosticator looking smart? Goldman Sachs, which in May said the rally would fizzle.

“Oil prices have so many moving parts that it’s exquisitely challenging to predict,” said Credit Suisse Group AG global energy economist Jan Stuart. He revised his January forecast in February, predicting oil would average around $67 a barrel at the end of the year. “That forecast looks ambitious now,” he said.

West Texas Intermediate crude dropped 2.5 percent Thursday on the New York Mercantile Exchange to settle at $42.23, the lowest close since March 2009. It touched $41.91, the lowest intraday level in more than six years.

Morgan Stanley researchers were seeing a “modest recovery and higher prices into year-end” in an April 12 research report. They still have another 4 months to be proved right. In the meantime, crude prices have fallen by almost 19 percent and they revised their outlook in July, telling investors this could be worse than the oil rout of 1986.

Tough Job

Is it getting tougher to forecast accurately, with shale and oil sands production clouding the supply picture that once was dominated by OPEC?

That’s something everyone seems to agree on. “It’s increasingly getting difficult to peg exactly where this commodity is going to be headed,” said Chris Feltin, an analyst at Macquarie Bank Ltd. in Calgary. “There are a lot of moving variables globally.”

There’s a lot of talk about the shape of the oil price recovery. Most people are debating whether it’s a “V” shape where prices bottom out and quickly recover or a “U” shaped recovery where prices stay low for a while before bouncing back.

Oil and gas restructuring specialist John Castellano at AlixPartners in Chicago offers another more intriguing visual: “we view it more as shark teeth,” he said, describing prices that bounce between $45 and $65 a barrel over the next few years without dramatic swings in either direction.

“This is more like a new normal in this price range,” he said.

Most analysts, in the meantime, predict that oil prices will slowly recover, or at least won’t get any worse, by the end of next year. Natixis SA is on the low end among those surveyed by Bloomberg at $46 a barrel while Standard Chartered Plc analysts are forecasting prices will rebound to $85 a barrel by the fourth quarter of 2016.

Only time will tell who is right.

--With assistance from Rebecca Penty in Calgary and Dan Murtaugh in Houston.

To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net. To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net Carlos Caminada

Copyright 2016 Bloomberg News.


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Bill Simpon | Aug. 15, 2015
It all depends on the Saudis. They have 3 goals. First, crush the US shale oil industry by bankrupting as many companies as they can. They hope that will make lenders reluctant to lend them money next time, since they might open the tap, and do it again. That would crush the shale drillers again. Want to risk losing your money twice? Second, the Saudis and fellow Sunni Muslim neighbors want to hurt Shiite Muslim Iran. Russia is also in their sights, since the Russians support Assad in Syria. This is about more than just oil and money. Finally, the Saudis want to monopolize as much of the oil industry as they can. In that way, they maximize their long term wealth and power. Low oil prices will limit the resources which international oil companies can devote to oil exploration and production. That will limit future oil production in places where it cost a lot to produce oil. Eventually, a shortage will develop, driving the price way up. The super majors will have to buy from where oil is readily available at the lowest cost. That will be from the Middle East. Eventually, a higher price will bring more supply onto the market. But not before the Saudis have made trillions of dollars and shrunk their private competitors to a fraction of their former selves. The danger is that they will be too successful and drive the price too high, or cause an actual fuel shortage. Either outcome could cause a global economic contraction from either very high fuel prices destroying demand for everything else, or from a fuel shortage. The shrinking of the global economy overloaded with record levels of debt, could pop the debt bubble, taking down the banking system. Our friends over there might want to remember that no amount of money can transform sand into food after the banking system collapses.

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