Dec 8 (Reuters) - Oil analysts are taking stock of the recent OPEC meeting that decided against production cuts despite a huge oversupply in world markets.
Oil dived 4 percent to five-year lows on Monday, as Wall Street expectations of a deeper price slump next year and a Kuwaiti prediction for $65 crude set off one of the biggest declines this year.
Date: Dec. 8
Call: Market will rebalance and prices will rally by 2016, but the worst is yet to come.
“We assume no material OPEC supply cuts and no unplanned supply disruptions take place during 2015.”
“We expect the crude oil markets to rebalance and revert back to a price range that justifies reinvestment economics, i.e. between $95 and $100 per barrel level.”
“Regardless of what OPEC does, we believe the market will be looking for real supply response from non-OPEC producers. The new reality is that OPEC on its own will no longer be able to rebalance oversupplied oil markets. Although production growth should slow in key non-OPEC regions, including the U.S., Russia, the North Sea and Latin America, the timing is less clear; we do not expect to see a measurable slowdown until at least 3Q or 4Q15.”
Lowers average Brent price forecast to $74 per barrel from $108 for 2015 and to $85 from $110 in 2016. Cuts average WTI price forecast to $68 a barrel from $96 in 2015, and to $79 from $102 in 2016.
Date: Dec. 5
Call: Market to find balance as early as second half of 2015 through demand stimulation, slower U.S. production growth and/or an outage.
“Without OPEC intervention, markets risk becoming unbalanced, with peak oversupply likely in second quarter of 2015. Prices are set up to fall in first half of next year, but we do not see stress quite matching that of prior crises.”
“Outage risks rise with low prices, effective spare capacity is near zero and OPEC or non-OPEC intervention (less supply) is still possible. Sustained low prices also risk a supply crunch by 2017 or 2018 related to insufficient investment.”
Lowers average Brent price forecast to $70 per barrel from $98 for 2015, and to $88 from $102 in 2016.
Date: Dec. 1
Call: The fundamental oversupply will take up to a year to clear.
“OPEC decided it was prudent to endure short-term pain for long-term gain: preserve its long-term market share and provide a temporary stimulus to the global economy. And therein lies the significance: OPEC’s decision was predicated on the assumption that the adjustment process will be short. We do not think this is the case and forecast Brent to average under $80 for 2015.”
“Though the oil industry is entering a new phase of lower prices, cost pressures on unconventional supply are likely to lead to enhanced productivity and capital discipline in the years ahead. If OPEC has truly abdicated its role as a moderator of price swings, only with pain will OPEC and tight oil producers gain in the long run.”
Date: Nov. 28
Call: Markets will remain heavily oversupplied and prices under pressure, if OPEC does not make any emergency cuts
“There is a risk that prices might rebound. Low oil prices are not beneficial to any of the OPEC producers. Even the stronger of the OPEC producers such as Saudi Arabia and UAE will become reliant upon their cash reserves that were generated over the last few years, thanks to above $100/bbl oil prices and higher than expected exports.”
“OPEC’s decision was most definitely political, by letting the market stabilise itself, this will undoubtedly take out the high-cost marginal players, but the timeline will be very important. Weak OPEC players will feel the pinch in the coming month and we won’t be surprised to see an emergency meeting as mentioned in the talks between Venezuela, Mexico, Saudi Arabia and Russia.”
“Looking at where fundamentals stand right now, we have revised our forecasts for Brent down to $73.8/bbl for 2015 (average). We anticipate with such weak fundamentals, oil price could fall as low as $65/bbl in coming weeks. However, prices may not stay there for too long.”
Date: Nov. 28
Call: OPEC’s decision to maintain its production entrenches a surplus in the oil supply/demand balances
“It also implies that OPEC is forfeiting its role as swing supplier, leaving the invisible hand of the market to adjust balances through price changes.”
“As a result of the now entrenched oil supply surplus, we have revised down our crude oil price forecasts. We now forecast Brent averaging $100 per barrel in 2014 and $77 a barrel in 2015. We see WTI averaging $94 per bbl in 2014 and $70 a barrel in 2015.”
Date: Nov. 27
Call: Expects U.S. production growth will slow, and OPEC will implement moderate production cuts once this slowdown is apparent
“OPEC’s decision came in line with our expectation and our view that it is not in OPEC’s interest to balance the market on its own but that U.S. shale oil production should contribute as well, given its scalability.”
“While we continue to believe that WTI prices in a $70-$75 per barrel range are sufficient to incentivize U.S. producers to reduce capex, today’s price sell-off creates potential for further declines in oil prices.”
“We reiterate our 2015 price forecast with Brent prices at $80-$85/bbl and WTI at $70-75/bbl.”
“We believe another large leg lower in Brent oil prices to near $60 a barrel would not be sustainable beyond a few months (absent significant demand weakness) as it would accelerate the rebalancing of the oil market with Canadian oil sands and U.S. shale oil projects reaching their production variable costs.”
Date: Nov. 27
Call: OPEC likely takes a long view to sustaining consumer demand
“OPEC likely takes a long view to sustaining consumer demand not only through increasing affordability and contributing to economic growth, but also reducing the attractiveness of substitutes.”
“In our view today’s decision throws the market balance into crisis most acutely in H1-2015 when seasonal demand is weak, and perhaps before U.S. tight oil producers have had a chance to make any major adjustment to activity levels. We estimate that sustained pricing at $60/bbl WTI is the level which would trigger a material shift in the trajectory of U.S. production growth.”
Date Nov. 28
Call: Not wholly good news as it will add to disinflationary pressures; the net effect should be positive for equities, but some emerging market currencies and U.S. high-yield credit are vulnerable.
“We think sentiment (and prices) could bottom fairly rapidly if we start to see signs of the market adjusting - notably in falling U.S. drilling activity or rising demand estimates.”
“The near-term impact of lower oil prices is likely to be varied. Clearly, oil producers will suffer and oil importers benefit. However, we caution against getting too carried away with the good news that comes with lower oil prices. At least in part, falling oil prices represent an ongoing deficiency in global demand which is manifesting itself in disinflationary pressures not just in commodity prices, but also wages.”
Date: Nov. 27
Call: Price pressure is likely to become so strong that OPEC is very likely to hold another meeting before June.
“At least one quarter of chaos is likely to ensue, with the cash constraints on the industry tightening significantly. Next time around, OPEC is likely to have to cut more aggressively than it needed to at the latest meeting, given the deep market skepticism that is likely to surround the announcement of any emergency meeting.”
Lowers 2015 Brent average forecast to $85/bbl from $101 previously and 2015 NYMEX WTI average forecast to $81/bbl from $95 earlier
Date: Nov. 27
Call: Strong signal that the market will be left to itself.
“The bottom line from the meeting is that it came out as bearish as it was possible. No change in the production target and no focus on compliance. Now everyone will know that it will be up to the U.S. oil producers to balance the market into 2015 through lower activity. We expect large cuts in capex for both onshore and offshore oil producers into 2015.”
“Based on the above we will have to revise our already very weak supply-demand balance to become even weaker into the first half of 2015. Saudi will probably cut production of crude somewhat during the coming couple of months due to the seasonal drop in its domestic demand but this will have nothing to do with price management.”
Expects large cuts in capex for both onshore and offshore oil producers into 2015
Date: Nov. 27
Call: Saudi Arabia and OPEC will no longer be the mechanism to balance the market from the supply side.
“Today’s decision means that Saudi Arabia and OPEC will no longer be the mechanism to balance the market from the supply side. They have relinquished that role. Instead, the market itself - prices, in other words - will be the mechanism to rebalance the market.”
Lowers average forecasts to $70/bbl from $90/bbl for Brent and $65/bbl for Nymex WTI ($82/bbl and $81/bbl for 2015 and 2016, respectively, earlier) for the next two years
Date: Nov. 27
Call: OPEC appears resigned to making the best of a bad job, at least for the time being.
“The cartel may have come to the conclusion that a period of lower oil prices could potentially work in the group’s favor over the longer term, given the boost it should provide to the global economy and hence to demand.”
“The cartel is faced with a set of similar decisions at its next scheduled meeting in June. What’s more, there is a realistic chance that by the time of OPEC’s next meeting there will have been some sort of agreement in principle between Washington and Tehran on the latter’s nuclear program. This could open the door for a surge in oil exports from Iran, making an agreement on any cut even more difficult.”
Expects oil prices to remain low (end-2016 forecast for Brent is $70 per barrel)
Date: Nov. 28
Call: The cartel has been more concerned over preserving market share, rather than lifting oil prices.
“OPEC’s unchanged 30 million barrels per day (mbpd) production limit does suggest its concern over preserving market share, rather than a possible futile attempt in lifting oil prices given rising oil supply from the U.S. shale oil production. ... The cartel views the oversupply isn’t by their hands, and should we infer, likely caused by high U.S. oil production given its shale production.”
“With the current low oil price, it is then vital to watch what the shale producers will do for the rest of 2014, and in the coming year. Needless to say, should shale oil production cost be indeed at $70-$77/bbl, shale oil producers’ profit margin are likely squeezed significantly, and future production cues may see downside pressure given current oil price lows.” (Reporting by Vijaykumar Vedala, Arpan Varghese and Ratul Ray Chaudhuri in Bengaluru)