Eoin Treacy's view -
We are directionally bullish to prices, but are revising down our average price forecast for
2015 due to a lower starting point than anticipated in early December
2015 revised down from 70 $/b to 65 $/b - could see prices even well into the 40¡¦s in 1H-2015 (not our base case however), but we expect a sharp price recovery
2020 revised down from 95 $/b to 90 $/b as we expect deflationary pressure in the oil market as global E&P CAPEX is cut drastically and hence create slack in the service industry
The market changed after the OPEC meeting
After the OPEC meeting in November the market will be left to itself until the next OPEC meeting scheduled for June
Prices will have to be low enough to achieve a new equilibrium between supply and demand but the price effect on fundamentals will be somewhat lagged
How far down prices need to decrease is impossible to calculate as the market could easily overshoot to the downside during the adjustment process, but we believe that current low prices are not sustainable for the global oil industry
1H-2015 looks over supplied even with higher demand and lower supply
The market looks to be over supplied in 1H-2015 even after assuming that global non-OPEC production will decrease sequentially through the year and at the same time assuming much stronger demand growth in 2015 than what we have seen in 2014
We expect that by 2H-2015 US shale production will start falling
Our base case is that by the second half of 2015 the worst part of the adjustment process is over and prices will improve
A link to the full report is posted in the Subscriber's Area.
In common with this service, the DNB team have been some the most sceptical of the widely held opinion that oil prices would stay perennially high. Veteran subscribers will be familiar with our refrain that unconventional oil and gas represent game changers for the Energy sector but a secular bear market does not happen all at once. It is therefore interesting that the DNB team are now beginning to call time on what has been a spectacular decline since June.
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