Barclays has revised downward their 1H15 price forecasts by about $6, but left 2H15 price forecasts the same on the expectation that lower prices will boost demand and OPEC reduces crude supplies lower than current levels.“After a brief recovery in crude oil prices in Q4, we expect to see further downward pressure on prices in early 2015 and have revised down our price forecasts accordingly. We have lowered our Q1 and Q2 Brent crude forecasts to $88 (previous: $95) and $87 ($92), respectively. Our new WTI forecasts for the same period are $78 (previous: $87) and $80 ($86),” Barclays said in its report.

“However, thereafter we anticipate a strong price recovery. Given that long-term marginal costs in oil production are well over $100/barrel and that the weak prices of the past four months have already resulted in several project cancellations/postponements, it seems extremely unlikely that oil prices will remain below $100 for very long, especially as we expect to see a combination of several factors contributing to an improvement in global oil balances by the second half of 2015,” the report said.

Prices have fallen sharply but may still have further to go. First-half 2015 balances exhibit telltale signs of a weak market, meaning that OPEC countries will struggle to rebalance the market fully without a stockbuild. Further OPEC supply side adjustments are expected, but these are unlikely to be sufficient to overcome a lacklustre demand picture in the first half of the year, according to the Barclays report.

US tight oil producers will likely take a long-term view. Although lower WTI prices may dent production in the second half of next year, cost and efficiency improvements, company variability, and producing basin infrastructure build-out mean the real effect is unlikely to be as uniform as a simple breakeven cost curve, Barclays said.
Source: Barclays