Cheap oil is here to stay in 2015 and 2016 does not look much better, Moody’s Investor Service said in an analysis.
The credit ratings and market analysis group said it had cut its US oil price forecast to $50 per barrel in 2015 and to $52 per barrel in 2016. Moody’s put Brent crude, the global benchmark, at $55 per barrel in 2015 and $57 per barrel in 2016, Fuel Fix reported.
Moody’s said the oil markets would eventually balance supply and demand around $75 per barrel for Brent, but reaching those levels might take until the end of the decade.
“Our forecast for world economic growth implies some increase in global oil demand, though not enough to keep pace with still rapidly rising production,” Moody’s analysts wrote.
Moody’s said that its medium-term price assumptions reflect its view that the supply-demand equilibrium will eventually be reached at around $75 per barrel for Brent and $70 for WTI. That is far higher than the last rally that petered out in June.
At this time, WTI was under $45 per barrel, so $70 would require a rally of more than $25, or more than 50%, that is also sustained around that level.
On Brent, Moody’s thinks its $75 assumption is a price that would support development of the world’s most expensive oil in an environment of lower development costs than in recent years.
Still, Moody’s said that it now expects that this price will only be reached at the end of the decade.
On forward prices, Moody’s said: Global inventories will continue to weigh on prices. Stores of crude in the Americas, Europe and Asia stood at 4.2 billion barrels in June, up from the 3.8 billion to 3.9 billion levels of the past five years. The excess inventory is roughly equivalent to 1% of global demand, Moody’s said.
A deal with Iran could also lengthen an oil price recovery. Iran’s oil production shrunk by about 750,000 barrels per day after sanctions were imposed in 2012, and some of that shortfall could be reversed within a few months of a final deal being reached.
“The possibility or the reality of higher Iranian exports will likely also weigh on oil prices in the next 18 months through at least early 2017,” Moody’s said.
Brent crude for September delivery dropped 91 cents, or 1.8%, to $48.61 a barrel on Friday, its lowest close since January. Brent saw a 6.9% weekly fall, its largest since March.
