Leading investment bank Credit Suisse believes crude oil will not reach above $60 per barrel before 2020, contrary to estimates by market analysts far and wide.
The bank dropped on Monday its long-term growth forecast for West Texas Intermediate (WTI) by $5 a barrel to $57.50 by 2020. Brent will touch $60 that same year, according to the projections.
A three-year glut in international crude supplies has caused severe downward pressure on oil prices. The downturn has led to hundreds of thousands of job losses and trillions of dollars in cut exploration budgets.
The Organization of Petroleum Exporting Countries (OPEC), under the leadership of Saudi Arabia, negotiated a deal amongst bloc and non-bloc producers to cut output by 1.8 million barrels per day. Prices rose briefly after the reduction began in January, but new production from Nigeria, Libya, and the United States erased nearly all gains.
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The Credit Suisse team also pointed to slow oil demand in developing countries, which has made it difficult to draw down international inventories.
Major investors are also losing a bit of confidence in oil's comeback. Much of the rally in oil prices between the end of March and mid-April occurred as investors closed out short positions and took on bullish bets. Since then, however, hedge funds have slowed their net-long builds, a sign of waning confidence in higher oil prices.
The OPEC deal will remain in place at least through March 2018, according to the terms of an extension agreed upon in late May. Analysts had hoped for deeper cuts to compensate for new supplies, but the bloc failed to announce any fresh cuts at the previous summit. Today, Reuters quoted secretary general Mohammed Barkindo as saying that although so far progress with the rebalancing of global oil supply has been slow, it should pick up in the second half of the year.
By Zainab Calcuttawala for Oilprice.com
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Zainab Calcuttawala is an American journalist based in Morocco. She completed her undergraduate coursework at the University of Texas at Austin (Hook’em) and reports on… More