Banks and research houses use proprietary tools, market intelligence and insights to make forecasts on everything from oil to gold to currencies and share prices. So it is no surprise when predictions vary.
But when they come up with completely opposite outlooks, it can be troubling. Recent views on US crude output, the surge of which was one of the main reasons behind the current plunge in prices, is a case in point. And it shows just how uncertain the path forward is.
Societe Generale expects Ice Brent to average $65/bl in the third quarter, up $5/bl from its previous forecast, as US production slows, soaking up the surplus as a global stockbuild slows. Nymex WTI is forecast to average $60/bl, again an increase of $5/bl. The bank also increased its forecast for WTI in the fourth quarter, by $1/bl to to $60/bl.
In contrast, Barclays in a report published on the same day titled “Not adding up” said it expects prices will not increase because rising Opec output will offset a slowdown in US supply growth.
“This means that global oil stocks, already at record highs, will continue to climb, resulting in further downward pressure,” it said, adding, “the oil market is ripe for a downward correction.”
Fitch Ratings kept its long-term Brent forecast unchanged at $80/bl. However, it lowered its long-term price forecast for WTI to $70/bl as shale producers sustain output growth. WTI outlooks from Fitch and SocGen suggest that they are heading toward the same territory of $65-$70/bl. Fitch did not definite its time period for “long-term.”
A steep fall in drilling activities is forcing services companies to offer deep discounts to retain share in a shrinking market. That has lowered costs for producers, prompting some of them to prepare for a step up in operations. The US rig count fell to 868 last week, close to a 12-year low of 862 set on 24 January 2003.
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