Petrochemical markets stalled as players speculate on direction of crude
According to a survey of banks carried out by the Wall Street Journal, the average crude oil price forecast for 2016 currently stands at $48/barrel for NYMEX crude and at $50/barrel for Brent crude, a decline of $5/barrel on the NYMEX and $7/barrel for Brent when compared with the same survey’s results from December. The banks in the survey have downgraded their oil forecast every month since August.
Meanwhile, the US Energy Information Association (EIA) predicted average NYMEX crude prices at $38.54/barrel in 2016 and at $47/barrel in 2017, while the agency’s predictions for Brent crude were at $40.15/barrel for 2016 and at $50/barrel for 2017. The EIA cited expectations of further stock build ups through the first half of 2016 as one of the primary factors weighing down average crude oil prices. EIA added that prices may remain volatile as there are still significant uncertainties facing the market from the impact of the expected return of Iranian oil producers to the pace of consumption growth and the production strategies of non-OPEC oil producers.
Investment bank Morgan Stanley released a report suggesting that Brent oil prices could fall as low as $20-25/barrel, with the bank pointing to the stronger dollar as the main factor behind its forecast for persistently depressed oil prices. Morgan Stanley analysts argued that oil is highly leveraged against the dollar and that a 5% appreciation in the currency could cause oil prices to fall by 10-25%.
According to media reports, Barclays also implemented a steep reduction in its crude oil price forecast for 2016, revising previous predictions of $60/barrel for Brent and $56/barrel for NYMEX crude down to $37/barrel for both benchmarks. The bank, which had previously expected oil prices to recover to $70/barrel in 2016, commented that oil market fundamentals continue to weaken while global economic conditions are also putting downward pressure on oil prices.
Elsewhere, the Conference Board of Canada (CBC) predicted that oil would average around $40/barrel in 2016 after hearing predictions from several industry experts. CBC Chief Economist Glen Hodgson added that he would not be surprised to see oil prices in 2016 briefly fall to $20/barrel or even $10/barrel. The CBC commented that investment in Canadian oil was down 40% last year. In spite of the drop in investment, the CBC believes that Canadian oil sands producers will keep their existing units in operation while delaying future investment projects, adding that oil sands operators need prices of around $35-40/barrel to breakeven depending on the age of the wells.
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