Oil analysts are, if nothing else, optimists.
So much so that no one seemed to see the 60 percent slide in oil prices coming when the commodity was trading at almost $108 a barrel on June 20, 2014. At the time, analysts as a group predicted oil would average about $100 a barrel this quarter and the most pessimistic called for $84, instead of the low $40s it’s languishing at.
Analysts are still mostly sunny, looking for a 60 percent rally by late next year. Even the worst month for oil since 2008 has brought out just a few frowns, as Societe Generale SA and Canadian Imperial Bank of Commerce cut their estimates in the past week by more than $10 a barrel. The prognosticator looking smart? Goldman Sachs, which in May said the rally would fizzle.
“Oil prices have so many moving parts that it’s exquisitely challenging to predict,” said Credit Suisse Group AG global energy economist Jan Stuart. He revised his January forecast in February, predicting oil would average around $67 a barrel at the end of the year. “That forecast looks ambitious now,” he said.
West Texas Intermediate crude dropped 2.5 percent Thursday on the New York Mercantile Exchange to settle at $42.23, the lowest close since March 2009. It touched $41.91, the lowest intraday level in more than six years.
Morgan Stanley researchers were seeing a “modest recovery and higher prices into year-end” in an April 12 research report. They still have another 4 months to be proved right. In the meantime, crude prices have fallen by almost 19 percent and they revised their outlook in July, telling investors this could be worse than the oil rout of 1986.
Is it getting tougher to forecast accurately, with shale and oil sands production clouding the supply picture that once was dominated by OPEC?
That’s something everyone seems to agree on. “It’s increasingly getting difficult to peg exactly where this commodity is going to be headed,” said Chris Feltin, an analyst at Macquarie Bank Ltd. in Calgary. “There are a lot of moving variables globally.”
There’s a lot of talk about the shape of the oil price recovery. Most people are debating whether it’s a “V” shape where prices bottom out and quickly recover or a “U” shaped recovery where prices stay low for a while before bouncing back.
Oil and gas restructuring specialist John Castellano at AlixPartners in Chicago offers another more intriguing visual: “we view it more as shark teeth,” he said, describing prices that bounce between $45 and $65 a barrel over the next few years without dramatic swings in either direction.
“This is more like a new normal in this price range,” he said.
Most analysts, in the meantime, predict that oil prices will slowly recover, or at least won’t get any worse, by the end of next year. Natixis SA is on the low end among those surveyed by Bloomberg at $46 a barrel while Standard Chartered Plc analysts are forecasting prices will rebound to $85 a barrel by the fourth quarter of 2016.
Only time will tell who is right.