Citigroup predicts that crude oil prices could plunge to as low as $20 a barrel. Although, a decline in global expenditure has seen oil prices increase slightly in recent weeks, crude oil futures prices could remain low for the entire year.
Average Crude Oil Prices Set to Go as Low as $20 in 2015
U.S. drillers are still going on with their oil production and the same is true for Russia, Brazil, Iraq, Saudi Arabia and Iran, all of whom have been trying to stay competitive by cutting their prices. The record low oil prices come in the wake of a massive oil glut.
It is unlikely that major oil producers will slow down production before Q3 of 2015. Even West Texas Intermediate Crude, which has traded at a high of $52 per barrel, could plunge down to $20 for some time, according to the Citigroup report. Unprecedented production of U.S. shale has made it increasingly difficult for OPEC to increase oil profits for its member countries.
Crude oil prices to stay low for foreseeable future
Edward Morse, global head of commodity research at Citigroup noted, “It is looking unlikely for OPEC to go back to its old way of business. Although analysts have seen in the past market crises ‘the end of OPEC,’ this time around might well be different.”
Citi lowered its yearly predictions for Brent crude two times in a row in 2015. Its initial forecast was in the range of $45 to $55 but these prices are unsustainable and they will likely deter investors from putting their money in oil. Although oil prices are anticipated to hike up to $75 per barrel, the average price for 2015 will be in the $54 per barrel range.
Ian Taylor, chief executive officer of Vitol Group, the world’s biggest independent oil trader, said that because the oil market is facing an oversupply, there is a high possibility of a downward spiral in prices at least for the first six months of the year before supply balances out in the last half of the year. Presently, all signs indicate that output in the U.S. is not slowing down any time soon.
In developed countries, oil production may increase to an all-time high of 2.83 billion barrels by the first half of 2015 given than supply remains high.
Taylor reaffirmed that the low prices are not sustainable for the long term. However, analysts agree that crude oil prices will remain modestly low for the near future. It is likely that the world will see prices fall even further before they pick up and stabilize.
According to the Paris-based adviser IEA, oil-producing nations outside of the OPEC will continue to produce as much 800,000 barrels a day in 2015 down from an estimated 1.3 billion barrels a day.
Investors are excited about the decline in rig counts. However, Morgan Stanley warns that although slight crude oil rallies could occur, they are likely to be unsustainable.
Present oil rallies are bearish signals for what is expected in the second half of the year. Energy companies are lowering their capital expenditure as oil prices fall, helping to stabilize the market. In effect, if crude oil prices increase, the markets will face further imbalances.
It is also worthwhile for investors to note that any rally in oil prices will cause producers to sell or hedge. This is because spot prices are presently higher than futures prices.
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