- Oil price decline went too far and too fast
- Downside risks remain, but we expect a recovery in the course of 2015
- Forecasts of average oil prices revised downward: Brent 60/bbl in 2015 and USD 75/bbl in 2016
Huge downward pressure on oil prices
Oil prices have dropped by more than 55% since June 2014. This huge decline was mainly triggered by overproduction. The overproduction is not new, but the fact that investors – and, perhaps more importantly, speculators – focus on it has resulted in large downward pressure on oil prices. The slide is also supported by other arguments, such as the wait-and-see approach of OPEC, downward revisions of market expectations for oil demand and the strong appreciation of the US dollar. The Brent oil price has dropped to below USD 50/bbl. In the near term, even more pressure cannot be excluded, and a drop to the lows of 2008 is possible.
Recovery expected later this year
We believe that oil prices have dropped too far and too fast. The first signals for a possible upward price recovery are already emerging. The market, however, is ignoring them. In our view, a recovery of the oil price will be the result of several factors, all of which will lessen the oversupply situation. These factors include:
- A further delay of new (expensive) oil projects
- Decline in US oil production (the number of US rigs has been declining for several weeks)
- Lower OPEC oil production (but within the current quota of 30 million barrels per day)
- Upward adjustment of expected oil demand, as a result of increasing global economic growth
Oil price forecasts revised downward
We now believe the average oil price will be significantly lower than we expected and despite the recovery we expect in oil prices over the course of 2015. As a result, we are lowering our oil and gas price forecasts for 2015 and 2016. We now expect an average Brent oil price of USD 60/bbl in 2015 and USD 75/bbl in 2016. We expect that the price for WTI crude will remain slightly below the Brent oil price. We have also revised downward our forecast for US Henry Hub natural gas, based on disappointing demand (mild weather), high inventories and declining international market prices for gas, especially liquid natural gas.
More details of these forecast adjustments will be published in our Quarterly Commodity Outlook on 29 January 2015.