Analyst: Current oil market panic looks overdone

Baku, Azerbaijan, Jan. 8
By Aygun Badalova - Trend:

Current market panic caused by continuous drop in oil prices, looks increasingly overdone, Julian Jessop, Head of Commodities Research at British economic research and consulting company Capital Economics believes.

"There is no compelling reason why oil prices cannot fall further in the near term, but the current market panic looks increasingly overdone," Jessop said in a report obtained by Trend.

"The limited news on oil fundamentals remains bearish: Saudi officials continue to take a sanguine view of the slump in prices; oil production data are still firm; and the latest business surveys suggest that the global economy ended last year on a weak note. The dollar has also climbed further, particularly against the euro," according to the report.

"Looking ahead, short-term operating costs may be as low as $10-20 per barrel even for many US shale firms, so it is perfectly conceivable that oil prices could fall further," Jessop said.

Nonetheless, he believes, the longer that prices remain below $60 per barrel, the bigger the eventual output response is likely to be, and this should limit the downside for prices over the medium to longer term.

"What's more, we suspect that market sentiment has become too pessimistic on the prospects for the world economy, not least given the potential boost from lower oil prices themselves," Jessop said in a report.

The analysts of the company lowered their end-2015 forecast for Brent price from $65 to $60 per barrel, but still held to $60 for end-2016.

Capital Economics' analysts in their previous report mentioned that the prices of both Brent and WTI continued to fall in December and are now down by about a half since the start
of 2014.
They said the two benchmark oils fell by roughly the same amount last month, so that the Brent-WTI spread was largely unchanged, however the spread is now just a fraction of its level this time last year.

Analysts believe that the fall in oil prices in December was driven by the same factors which have been weighing on oil prices since June, namely, increasing supply, weak demand and a strong US dollar.

During Wednesday's electronic trading on the New York Mercantile Exchange the West Texas Intermediate (WTI) for February delivery increased by $0.72 to $48.65 a barrel.
February Brent, which is the benchmark price for products in Europe and Asia, decreased by $0.21 to $50.89 a barrel on the London-based ICE Futures Europe exchange.
---
Aygun Badalova is Trend Agency's staff journalist, follow her on Twitter: @AygunBadalova