Despite the streaming supply of oil from Saudi Arabia, Iran ramping up to further surge the global market, and some industry watchers taking a more bearish outlook in the near-term, the weakening of U.S. oil prices may not be as bad as some have projected.
In fact, The Telegraph in London suggested in a recent article that Saudi Arabia may actually lose out before there’s a buckle in the U.S. oil industry.
“If the oil futures market is correct, Saudi Arabia will start running into trouble within two years. It will be in existential crisis by the end of the decade,” wrote Ambrose Evans-Pritchard. “The contract price of U.S. crude oil for delivery in December 2020 is currently $62.05, implying a drastic change in the economic landscape for the Middle East and the petro-rentier states.”
Even as analysts at Raymond James & Associates (RayJa) assert in a note to investors that their WTI rebound forecast has taken a $10 dive to $50 for 2015, with a slight increase to $55 in 2016, those figures are still better than lower to mid-$40s evident during the last week.
Still, RayJa said oil market sentiment is as ugly as it’s been since January, based mostly on four fundamental concerns hanging over the U.S. oil like angst:
- Saudi production is at record highs apparently engaged in an “increasingly irrational price war with non-OPEC producers”
- Greater visibility on recovery in Iranian oil export
- An inexplicable surge in Iraqi producing during the last couple of months
- Collapsing global demand
Put it all together and you have an industry set for a second year of “painful austerity,” with 2016 capital spending expected to be flat or less than 2015, RayJa said.
But oil folks are nothing if not optimists, and RayJa managed to find a better bottom line to all the belt-tightening.
“The ‘silver lining’ of these reduced estimates is that low oil prices cure low oil prices,” they said. “Specifically, the flood of large oil project cancellations and delays that we discussed … sets the stage for a potentially undersupplied oil market in 2017/18.”
That leads RayJa to maintain a long-term (2017-plus) forecast of $70 WTI and $77 Brent.