Moody’s Slashes Oil Price Forecast for 2016

“It’s technical buying. It’s pretty obvious shorts started to take profit when Brent prices dropped down to the 2008 low”, said Tamas Varga, oil analyst at London-based PVM Associates. So, the prices were unable to recover.

Oil is under continued pressure as OPEC has failed to make production cuts, leading to an ever-growing oversupply.

OPEC’s own report estimates global demand growth to reach about 1.25 million barrels a day, down from 1.53 million barrels a day in 2015. A number of its own member countries, including Venezuela, are struggling immensely in this low price environment and conditions will only worsen should oil prices fall lower. Prices have fallen more than 60 per cent from levels above $100 in June a year ago owing to slack global demand and a slowdown in key markets including China. “The oversupply is about 1.5 percent of a 95 million bpd market with limited spare capacity in a risky political setting for weak petro states prone to disruption”, Citibank said. Brent crude fell below $38 a barrel for the first time in seven years on Friday and was last down 1.6 percent at $37.30, within a few cents of Friday’s low. The OPEC chief signaled the group has no need to cut production yet, despite the price collapse to the lowest in six years. The US’s decision to waive sanctions against Iran if conditions are met could add to global supply and oil will increase by just $5 a barrel in each of 2017 and 2018, Moody’s said.

Cabot Oil & Gas Corporation (NYSE:COG), share price decreased in the last trading session with a previous 52-week high of $35.58. The U.S. Federal Reserve is likely to raise interest rates for the first time in nearly a decade later this week.

The majority of investors expect USA oil prices to average $55 a barrel in 2016, which would be only slightly higher than this year’s average, according to a survey of more than 200 investors by investment bank Tudor Pickering Holt & Co. “WTI has the bigger move because investors believe that a deal to lift the export ban may be close”.

Arab Gulf States said they would continue the high production rate even if the price falls to US$20 a barrel.

“Almost the entirety of added supplies in 2016 will come from Iran, Iraq and Saudi Arabia”, Morgan Stanley analysts said in a research note Monday, adding that OPEC supply is likely to increase by a million barrels per day next year.

“We’ve been going straight down like a plumb line”, said Mark Benigno, co-director of energy trading at INTL FCStone Inc.