Where Will Crude Oil Prices Go in 2015? ::Edelweiss

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Most recent news headlines have centered on the energy markets, particularly crude oil. There are so many questions swirling around this issue, like:

• Have crude oil prices reached a new normal?
• What are the reasons behind the huge crash in crude oil?
• Are these levels sustainable?
• Amid US’ emergence as a big oil producer, OPEC’s refusal to cut production, economic slowdown in China, deflation fears in Eurozone and new evolving technologies in energy markets, is the crude oil market fundamentally altered?
• How falling crude oil is affecting Russia, Iran, Venezuela, Saudi Arabia, US and India?
• How long crude oil will stay at current low levels and what’s in store for 2015?

Brent crude oil has already plummeted from a peak above US$110 per barrel just six months back to as low as US$60 while WTI has slumped from US$101 a barrel to as low as US$54 over the same period.

Over the last six months, we have seen a dramatic plunge of ~50% in the price of crude oil. There are three fundamental reasons for weak crude oil prices:

• a strong dollar,
• weakening global demand
• accelerating supply

Another contributing factor is speculative positioning, which, in turn, is a function of the above three.

This report intends to explore the extent to which fundamental factors as well as irrational behavior have driven this price movement in crude oil and attempts to answer all of the above questions.

The fundamentals strongly suggest that US$55 a barrel for WTI crude is an unreasonable and unsustainable price as:

• Supply and demand are not significantly out of balance. Does not justify a 50% price drop
• Overreaction to "projections" of future oversupply has caused fear. At a low crude oil price, projection is likely to be wrong
• If low prices persist, many US shale projects will not be viable, which could impact long-term supply. Reduced budgets will begin to rein in production growth over the next 12 months
• Cash-strapped oil-producing countries will become more unstable, leading to fears of supply disruptions

Download the full report now to read more.

https://www.edelweiss.in/research/Where-Will-Crude-Oil-Prices-Go-in-2015/10005350.html