With all eyes on the global crude oil market due to recent price declines, analysts and investors are frantically searching for the bottom, with some expecting a continued plunge. While there could still be some short-term volatility and downward pressure, Barclays’ analysts see oil prices strengthening by mid to late 2015.
Crude oil futures prices rallied during morning trading today.
The bank expects some degree of Opec production restraint – on top of subtle moves already made by Saudi Arabia – considerably lower incremental US production growth next year and the potential for supply disruptions to exert upward price pressure. The analysts also make an important point regarding recent Saudi market behavior, specifically that “the crude oil surplus is mainly in lighter crudes where Saudi’s ability to vary volumes is constrained…”. The Saudi Light grade of crude oil is heavier and contains more sulfur than the lighter, sweeter volumes getting backed out as a result of decreased US imports.
A senior oil market reporter and analyst recently made this same point to me in a conversation. And while we’re at it, he also suggested the Saudis may have simply been following the Asian market lower when they cut official selling prices into that market. Recent Asian crude oil spot market price declines necessitated the Saudi pricing adjustment, not necessarily the market-share price war that clogged so many headlines. He also echoed Jim Krane’s comments, saying only the Saudis know what they’re up to regarding oil policy and they like it that way.
Now back to the global market and prices. Barclays did cut their Q1 and Q2 2015 oil price forecasts, but then see prices rising back toward the $100 per barrel range later in the year.
“However, thereafter we anticipate a strong price recovery. Given that long-term marginal costs in oil production are well over $100/barrel and that the weak prices of the past four months have already resulted in several project cancellations/postponements, it seems extremely unlikely that oil prices will remain below $100 for very long, especially as we expect to see a combination of several factors contributing to an improvement in global oil balances by the second half of 2015.” Barclays: The Blue Drum – Bottom of the barrel? Oct. 28, 2014
