Analysts start downgrading crude oil

See possibilities of brent crude oil touching $40 per barrel

With crude oil prices falling sharply, analysts and brokerages have started revising their price forecasts downwards. They’re even seeing possibilities of Brent crude oil touching $40 a barrel.

Brent crude oil is presently $52.1 a barrel. Nymex (WTI) crude is $40. Abhishek Deshpande, analyst at London-based Natixis Commodities Research, said: “We have revised our forecasts for Brent down to $66.3/bbl for 2015 (average) and averaging $55/bbl in the current quarter (January–March 2015). We anticipate with such weak fundamentals and Opec (the petro exporters' cartel) politics, the price could fall as low as $40/bbl in coming weeks. However, prices might not stay there for too long.”

Citi Commodities Research said, “We are revising down our oil price for 2015 and 2016 to even lower than the earlier 'bear' scenario.” It had said earlier that Brent would average $80/bbl in 2015 and $85/bbl in 2016, with a bear case of $65/bbl for 2015. Now, it says, “Our new base case is that the market will sort itself out by the end of 2015 and ICE Brent will average $63/bbl for the year, within a $55-70/bbl range, and $70/bbl for 2016.”

It sees the first half of 2015 at $55/bbl for Brent. WTI would average $8/bbl lower than Brent. However, at a later stage, Citi doesn’t rule out Opec cutting output or lower supply due to lower capital expenditure, helping Brent to rebound.

Deshpande of Natixis agrees. “Oil below $70/bbl for a sustained period of time, three to six months, will have an impact on investments,” he says. “We’re already seeing Conoco reducing capex by 20 per cent and we will see some of the highly leveraged US oil companies scaling back investments soon.”

However, “The impact of the reduction in investment will not be seen significantly on oil output growth in 2015. We are more likely to see reduced growth in output in 2016 onwards. The US oil rig count is already down, reflecting the scale-back in short-term investments.”