Analyst: Chances of drop in oil prices recede, window for correction will close soon
As a notable European commodity analyst considers, the chances of another steep drop in the price of oil is rapidly receding, while a period of stability is expected in the second half of the year.
"The simple fact of the matter is that the window
for a correction will be closing in the coming few weeks," Michael
Wittner, global head of oil research at Societe Generale, said in a note
released Monday morning.
He outlined a number of reasons why prices
could stabilize over the next six months, including the fact that it
comes after the March-to-May quarter, which is traditionally when global
crude oil supplies are built up.
As Wittner highlighted, crude stockpiles – which show a glut in supply
– would also be reduced as the winding down of
refinery maintenance in Europe and Asia means more oil will get
produced.
Wittner said he expects months of declining U.S. crude production to further firm prices, as U.S. refineries are also expected to step up a gear and further reduce stockpiles.
In the third quarter of 2015, Societe Generale sees an average price of $60 a barrel
for Brent, and in the fourth quarter, a rise to $65 a barrel. The French bank predicts that WTI will track that price,
trading at $55 a barrel before rising to $59 a barrel in the last
quarter of 2015.
The bank's analysts, however, predict a dip in the
price of oil in 2016, as a pickup in U.S. shale spending, drilling, and
well completions weigh on prices.
"In recent weeks, physical market reports indicate that a large overhang of Atlantic Basin light sweet crude due to sluggish sales has been weighing on prices, or threatening to do so," he warned, adding that the technical signals have turned bearish for Brent and WTI.
He also noted that geopolitical risks had eased, in places like Yemen, and that improving U.S. economic data would boost the price of the dollar, and consequently dent the price of oil.
Another analyst, Vandana Hari, Asia editorial director at Platts, told CNBC Monday that sentiment had been hit this week as the fundamentals for oil were showing no signs of change.
"We still are sitting in an oversupply situation. Stocks are plentiful and demand is not really showing signs of strong growth from any part of the world," she said.
Analysts are now contemplating oil's "new equilibrium," with a slew of market watchers predicting that prices could climb to around $70 before the end of the year after a big collapse from near $120 a barrel in June last year.
