HSBC marks down 2016-18 Brent oil price assumptions

Despite the evidence that crude oil prices were on the mend, and that they were below levels thought to be sustainable, analysts at HSBC lowered their price forecasts for 2016 to 2018 due to the multiple increased risks for the recovery.

On their estimates, the global crude market was set to tighten by about 1.5m barrels a day in 2016, with supplies from outside the Organisation of the Petroleum Exporting Countries set to fall by between 0.5m and 1.0m barrels a day.

Unfortunately, the broker said, the market was probably oversupplied by 2m barrels a day or so in 2015.

Hence, "like it will probably take until H2 2016 or even 2017 before it moves back fully into balance," analysts Gordon Gray, Christoffer Gundersen, Kim Fustier and Thomas Hillboldt said in a research note sent to clients and dated 24 January.

On top of that, there was a large excess inventory position to work through, they said.

Among the near-term developments cited which drove their cautiousness the research team cited: the disappointing December OPEC meeting; the onset of higher Iranian exports; some big stockbuilds in recent US inventory data, the recent China and related market turmoil; further US dollar strength, notably against and EM currencies, and a significant increase in speculative selling pressure on crude in the futures market.

Gray and his team cut their forecasts for the average annual price of a barrel of North Sea crude in 2016 to $45 (from $60), to $60 (from $70) for 2017 and to $75 ($from $80) for 2018.

Nonetheless, they reminded their clients of just how far below fiscal-breakeven current prices were and how dramatic the price decline in industry investment had been.

It would be the first time since 1986 that global spending would fall for two years in a row and "the major impact on non-OPEC volumes still to result from it."

As of 13:42GMT front month Brent crude futures were down by 2.94% to $31.25 per barrel on the ICE.