Macquarie Sees 'Big Short-Term Sell Off' In Oil

In a recent report, analysts at Macquarie slashed their estimates for crude oil prices in 2015 and beyond based on updated supply/demand numbers and economic forecasts. Analysts are now calling for short-term pain in the oil market.

The numbers
Analysts reduced their 2015 projected prices for WTI and Brent crude oil prices by 23.5 percent and 24.3 percent respectively. Analysts are projecting WTI prices in 2015, 2016 and 2017 of $52/Bbl, $62/Bbl and $75/Bbl. They now see Brent prices for 2015, 2016 and 2017 of $56/Bbl, $68/Bbl and $81/Bbl.

The reasoning
Macquarie’s revisions are mostly based on the supply/demand balance that they see in the oil space in coming years. In addition to the price modifications, analysts increased their global demand growth estimate for 2015 by 300,000 BPD to 1.2 million BPD.
Despite increasing demand, analysts see little being done outside the U.S. to reign in production growth. Analysts predict 2015 production growth of 600,000 BPD from the Middle East OPEC countries, 15,000 BPD from Russia, 70,000 BPD from the North Sea and 300,000 BPD from Iran if sanctions are lifted this summer. Analysts conclude that global oversupply during the first half of 2015 will be 0.9 million BPD.
Macquarie’s crude price forecasts are below consensus for 2015 and 2016 and above consensus for 2017. “By 2017, the cumulative growth is likely to create tight S/D balances and upward price pressure,” analysts explain.

Sell off coming
With 2017 still two years away, analysts believe that oil investors should be bracing themselves for an imminent sell-off in oil. Macquarie is calling for Brent prices to fall back to the low $40 range, a more than 30 percent drop from current levels.
Shares of the United States Oil Fund ETF USO are already down more than 48 percent in the past year.