Analysts expect ‘subdued’ crude oil price likely to float around $52-barrel for 2015

Crude oil prices are likely to float bob around the $52-barrel level for the rest of this year while the OPEC cartel shows no sign of cutting back production and world demand remains subdued

That is the forecast in the latest Oil and Gas Outlook from Edison Investment Research, where analyst Ian McLelland, said:

“While a price correction is likely in the med-term, we forecast crude prices to remain subdued at current levels for the remainder of 2015, for which we estimate an average crude price of $52½-barrel  for the year.

“As the oil market awaits a negative supply response to the sharp correction in crude prices since mid-2014, we suggest a period of inertia may be ahead, with oil production, particularly from US shale, holding up in the near term.

“As 2015 capex cuts bite, hedges unwind and funding becomes increasingly difficult to secure, we expect this will form the foundation of a recovery early in 2016, where we estimate an average of $72-barrel will be achieved for the full year.”

The collapse in oil prices in the last six months and OPEC’s inaction are forcing a rebalancing of the oil market. Lower oil prices should logically trigger a supply response, with high-cost producers among the US shale group expected to be the first to cut production.

McLelland added: “The ability of US shale producers to quickly cut investment in response to gyrations in commodity prices (unlike longer-cycle offshore projects) supports the commonly-held view that oil prices will trough in Q1 as US production growth stalls in response to the weak macro environment.”

Meanwhile, Neill Morton, an analyst at Investec Securities, added: “We do not believe that OPEC squaring up to US shale producers was part of a pre-planned strategy. Rather it has stumbled into its current stance and now seems committed to a war of attrition.

“It is playing a dangerous game, in our view, if it believes that US shale can be tamed.”