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Scotiabank predicts another year of pain for oil prices

A supply-side adjustment, needed to bring global supplies in line with demand, hasn't yet occurred, the bank said.


September 1, 2015
by The Canadian Press

CALGARY — Oil companies are in for at least another year of pain, according to Scotiabank’s latest commodity price index.

West Texas Intermediate crude is expected to stay below US$50 a barrel for the next 12 months, vice-president and commodity market specialist Patricia Mohr said in the report Monday.

She sees some recovery to around US$55 a barrel by the end of next year.

“Global oil demand in 2015 has advanced at the fastest pace in five years… but a supply-side adjustment – necessary to bring global supplies down in line with demand and rebalance world oil markets – has not yet occurred,” she wrote.

Crude prices have had a volatile year, dropping to US$43.46 a barrel on March 17, running up to a high of US$61.43 on June 10 and then plunging to a new six-year low of US$38.24 a week ago.

On Aug. 31, oil was back above US$47 a barrel.

Mohr cited three factors behind the turbulence in crude prices:

1. Traders and investors have been disappointed the rate of production decline in the U.S., needed to bring supply and demand back into balance. It’s unclear whether Texas producers will stay resilient with crude in the US$40- to US$45-a-barrel range.
2. The Organization of Petroleum Exporting Countries is increasing its output to build market share in Asia as Saudi Arabia braces for a long battle with US shale producers, Russia and Iran.
3. On the demand side of the equation, Mohr notes that the China growth story has been called into question, but cautions against overreacting to the current jitters.

© 2015 The Canadian Press

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