Oil Price Forecast For 2015

After almost five years of stability, oil prices have considerably dropped. Indeed, since June 2014, the price of oil has fallen by more than 40%, when it was $115 a barrel. Today, It is below $70. At a meeting in Vienna on November 27th, the Organization of Petroleum Exporting Countries (OPEC), which controls about 40% of the world oil market, decided not to curb oil supply as prices have fallen so low. The oil cartel decided to allow the market to correct itself, sending oil prices tumbling. Without OPEC to defend prices, oil entered a free-fall, and most of OPEC’s members are holding fast.

The Economist explains that four things are now affecting oil prices. First, demand is low because of weak economic activity, increased efficiency, and a growing switch away from oil to other fuels. Second, conflicts in Iraq and Libya—two big oil producers—have not affected their output.  Thirdly, America has become the world’s largest oil producer. Even though it does not export crude oil, it now imports much less, creating a lot of spare supply. Finally, the Saudis and their Gulf allies have decided not to sacrifice their own market share to restore the price.

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So, what to expect for the oil market in 2015?

Overall, oil market professionals are expecting prices to rise, or at least to stabilize. Indeed, the current situation cannot last, and a supply correction is unavoidable. Throughout the year 2015, supply is expected to plunge, resulting in a slow but solid price advancement. However, opinions diverge as for how much it will increase. On one side, investors and forecasters expect prices to slightly increase, reaching $70 or a little below, while market participants expect Brent to rise by 35%, reaching $82 at year-end 2015. However, Morgan Stanley, the investment-banking firm, is not so optimistic. It expects oil prices to continue its decline in the first half of 2015 and to stabilize during the second half. Only in 2016 do they forecast a rise in oil price. Much depends upon Saudi Arabia and Kuwait, who could conceivably raise production to counter the cuts made in other Gulf States, even if non-OPEC producers would reduce their output to stabilize plunging oil prices.

One thing is certain, Brent price won’t return to a $100-110 over 2015


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