The slump in oil prices largely took the industry by complete surprise with most analysts continuing to forecast a strong forward price outlook for much of last year — as wider geopolitical concerns outweighed the increase in US shale oil production.
A Reuters poll of 28 leading oil analysts published in late August predicted an average 2015 price for Brent crude of US$105.30 per barrel, but since then forecasts have been slashed as the price rout gathered momentum going into the fourth quarter of last year.
The question for oil watchers now is at what point will the market rebalance and prices stabilise, but many analysts are now calling a bottom to prices as DME Oman traded at about $50 per barrel yesterday for the first time since May 2009.
Long-term market bear Edward Morse, the global head of commodities research at Citi, highlighted the key factors for 2015 in his latest report this week.
“Three massive factors have come to a head as 2015 opens: the US shale revolution, the Saudi refusal to cede market share to other producers and a weak world economy,” he wrote.
Citi Group also lowered its average Brent crude oil forecast for this year to $63 a barrel from the previous forecast of $80, and its average Nymex crude oil forecast to $55 per barrel from $72, suggesting that prices will soon rebound from current levels.
The collapse of 2008 that saw prices fall from about $147 to under $35 in less than six months demonstrated that a price retreat in the oil market can often be exaggerated, and values quickly recovered in 2009.
But despite the current price crash, the markets are awash with physical crude, which is adding further pressure to the downside. Additionally there are few signs of an upsurge in demand, as the weak global economy adds to the already poor fundamentals.
“Oil demand is notoriously inelastic, so despite a price reversal of more than 50 per cent, we have yet to see an upswing in demand. There is still too much oil in the market, but markets always seem to find a new way of rebalancing,” said Christopher Fix, the chief executive of Dubai Mercantile Exchange.
Front-month January DME Oman futures contract closed at $49.39 a barrel at 12.30pm UAE time yesterday, down $2.65 on the previous close and the lowest closing price since May 2009 — with almost 4,000,000 barrels traded during the five-minute window.
Paul Young is the head of energy products at DME
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