HSBC revises 2016 crude price down again, sees at $45 a barrel

Even as many of its peers are betting crude as low as USD 10-20, British brokerage major HSBC sounded a tad optimistic but has pegged down the average Brent crude prices at USD 45 a barrel for 2016 from USD 60.
The brokerage has also revised downward its price projections for the fuel to USD 60 for 2017 from USD 70, and at USD 75 by 2018 from USD 80 noting that crude prices have halved since mid-2015 and there is no end seen for the fall yet.
The report is based on Brent prices, which used to be the traditional price benchmark for Indian crude basket. But more and more domestic companies are now buying from Dubai as it is cheaper than the Brent prices by USD 2-3 a barrel.

Though longer-term thesis of oil market rebalancing remains valid, the process will likely remain difficult and volatile, HSBC said as its rationale for revising downward its price outlook to USD 45 a barrel for 2016 in a report.
It can be noted that since crude began to fall in June 2014, it has dropped over 72 per cent, with today marking a steep 5 per cent dip to USD 27-28 a barrel.
Its pessimism comes from the fact that crude supply has stayed at levels ample enough to keep visible OECD inventory in surplus while incremental oil demand growth remains relatively robust, estimated at over 1 million bpdin 2015 and in 2016, but not robust enough to drain the surplus.

Factors keeping the market in surplus include hedging, service deflation, and efficiency gains against already brimming storage capacity, the report said. Accordingly, it expects downstream oil and gas companies profitability to fall to levels not seen in over a decade.