Barclays expects oil prices to reach $85 per barrel by 2019, a year sooner than it previously forecast, the British multinational and financial services company said in a report.
Few dispute that oil prices will eventually rebound, but the conditions and timing remain highly uncertain, noted the report titled “Affirming, Upward Bound,” Trade Arabia reported.
“Since our previous analysis of medium-term prices (October 2015), geopolitical developments, a prolonged price downturn and several more months of data justify a reassessment of our assumptions," Barclays said.
“We reiterate our view that prices are not high enough to encourage sufficient production even in a low demand scenario," it said, adding that the base and low case demand forecasts still result in prices in excess of the current futures curve.
"As prices rise, we suggest the Dec ’17-Dec ’18 WTI spread will narrow. Since we expect prices to dip in Q3, lower forward prices present buying opportunities,” said Barclays.
It said that on the supply side, the one-two punch of capital expenditure reductions on current and future production is likely to create a shortfall in production over the coming years.
“From 2013 to 2017, new projects will fall by 40%. The volumes from those new starts for 2017 are lower by 50%. We have slightly pared our demand growth estimates but continue to expect base case demand growth of 1 million barrels per day on average to 2021," the report said.
It added that declining inventories, low spare capacity, the impact of low prices on geopolitical unrest and the deterioration in liquidity, among other factors, are likely to create more volatility in the future.
Barclays also forecast that the US shale output will not be a replacement for global production declines, or for Saudi spare capacity. Retail price policies in non-OECD countries, likewise, improve the demand elasticity, but their permanence remains unclear as prices rise again.
