Oil hits $30/bbl – and suddenly, analysts forecast lower prices

Oil markets

SHARE THIS STORY

Brent Jan16aYesterday, oil prices reached my long-held $30/bbl forecast level.  And suddenly, it seems, all the leading analysts have begun to forecast lower oil prices.  As Reuters reported:

Adjusting to the price rout, analysts have been shifting their price outlooks downward, with Barclays, Macquarie, Bank of America Merrill Lynch, Standard Chartered and Societe Generale all cutting their 2016 oil forecasts this week.”

What help is this for all those people who had relied on the consensus view till now?:

  • They were told, month after month, that prices could never fall below $100/bbl
  • Then they were told that prices would soon rebound to $100/bbl
  • More recently, they were told that prices would rebound, but it would take a little longer, maybe till 2017

But now they are being told, with no word of explanation or apology, that prices are actually going to go below $30/bbl.

I have been on the other side of this debate all along. As I wrote a couple of years ago:

The blog seems to be a lonely voice, focused on what is really happening in the real world”

The problem is that many analysts believe that independent judgements could be very dangerous for their job security. They feel it is much safer to wait until the market moves in a new direction, and then all rush to issue new forecasts – as happened yesterday.  This has been the pattern since the Great Unwinding began, as I noted exactly a year ago:

Suddenly, far too late, the world is catching up with reality.  Goldman Sachs and others yesterday halved their forecast for Brent oil to $42/bbl from $80/bbl.  But this isn’t forecasting, this is simply catching up with events long after they happened.  Brent, after all, opened at $45/bbl this morning.

Yet all the time, the fundamentals of supply and demand were telling us that an energy supply glut was developing – as I highlighted in the December 2014 Great Unwinding research note on the oil market:

“Astonishingly, most commentators remain in a state of denial about the enormity of the price fall underway.  Some, failing to understand the powerful forces now unleashed, even believe prices may quickly recover.  Our view is that oil prices are likely to continue falling to $50/bbl and probably lower in H1 2015, in the absence of OPEC cutbacks or other supply disruption.  Critically, China’s slowdown under President Xi’s New Normal economic policy means its demand growth will be a fraction of that seen in the past.

“This will create a demand shock equivalent to the supply shock seen in 1973 during the Arab oil boycott.  Then the strength of BabyBoomer demand, at a time of weak supply growth, led to a dramatic increase in inflation.  By contrast, today’s ageing Boomers mean that demand is weakening at a time when the world faces an energy supply glut.  This will effectively reverse the 1973 position and lead to the arrival of a deflationary mindset.”

The chart of oil prices since 1900 tells the story.:

It is going to be a very difficult 2016.  But hopefully our new Study – How to survive and prosper in today’s chaotic petrochemical markets: 5 Critical Questions every company and investor needs to answer – will help to support companies and investors as they start to deal with the consequences of the oil price collapse.

PREVIOUS POST

Expect $25 - $30/bbl oil and lower chemical prices in 2016

11/01/2016

More than $2.3tn was wiped off the value of global stocks last week as China’s...

Learn more
NEXT POST

Force majeures at record level, despite high profits

15/01/2016

All accidents are preventable.  This simple fact, which used to be top-of-mind ...

Learn more
More posts
Iran highlights OPEC’s dilemma on output cuts
14/02/2021

Saying you “won’t do something” may stop you digging a bigger hole for yourself. B...

Read
Oil prices start to reconnect with coal and gas
21/06/2020

Oil prices are finally starting to reconnect with other fossil fuel prices, as the chart shows.  It...

Read
Oil markets hit perfect storm as coronavirus cuts demand
01/03/2020

Former Saudi Oil Minister Sheikh Yamani’s warning in 2000 looks increasingly prophetic today: ...

Read
Oil markets hold their ‘flag shape’ for the moment, as recession risks mount
17/11/2019

Oil markets can’t quite make up their mind as to what they want to do, as the chart confirms. ...

Read
Oil market weakness suggests recession now more likely than Middle East war
11/08/2019

Oil markets remain poised between fear of recession and fear of a US attack on Iran. But gradually i...

Read
Recession risk rises as Iran tensions and US-China trade war build
26/05/2019

Oil markets are once again uneasily balanced between two completely different outcomes – and o...

Read
Déjà vu all over again for oil markets as recession risks rise
03/03/2019

Back in 2015, veteran Saudi Oil Minister Ali  Naimi was very clear about Saudi’s need to adop...

Read
Oil prices flag recession risk as Iranian geopolitical tensions rise
20/05/2018

Today, we have “lies, fake news and statistics” rather than the old phrase “lies, ...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more