The renewed downturn in oil prices has forced major banks to slash their price forecasts for 2017 as a new bear market induces heightened pessimism.
The Wall Street Journal surveyed 13 investment banks on their predictions for Brent prices, and the average result was $56 per barrel for 2017, which was about $1 per barrel lower than the survey the WSJ conducted in June. The investment banks also don't see oil prices bouncing back to $50 per barrel until the end of this year, which is a dramatic change from last year's expectation that oil would hit $70 in 2016.
"There is still a lot of oil out there and the sentiment is pretty bearish," Michael Wittner, chief oil analyst at Société Générale SA, told the WSJ. "For the time being, the path of least resistance for oil prices continues to be lower."
On Wednesday, the EIA provided another mixed picture for the oil markets in its weekly data release, showing a surprise build up in crude oil inventories by 1.4 million barrels. But that was offset by a drawdown in gasoline stocks, which fell by a relatively strong 3.3 million barrels. The markets seemed to put more emphasis on the gasoline figures rather than the crude stock build, and oil prices bounced on the news, pushing WTI back above $40.
The data halted, if only temporarily, a more than month-long downturn in oil prices, which fell from over $50 per barrel in June. But there is no guarantee that the price slide will reverse. In early trading on Thursday, WTI and Brent were back down. "Maybe the surprise drawdown in gasoline inventories helped future prices remain stable but that does not change the fact: the U.S. is flooded with oil," Tamas Varga, lead oil analyst PVM Oil Associates, told Reuters.
Meanwhile, the Bank of England cut interest rates to 0.25 percent, the lowest rate on record in its 322-year history. It also announced monetary stimulus measures, a 60-billion-pound asset purchase program intended to blunt the effects of the UK's decision to exit the EU. The British pound sank more than 1 percent on the news. Along with the monetary expansion in Japan, the dollar is seeing relative strength, which is bearish for crude oil.
By Charles Kennedy for Oilprice.com
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