Bank of American Merrill Lynch Wednesday downgraded its forecasts for
global oil supply, demand and prices, citing high U.S. and non-OPEC
production as some of the main drivers behind the revision.
"Lower global oil demand, rising supplies and higher
inventories are a cocktail for lower prices," wrote the bank's oil
analysts in a note. They changed their prediction for the price of North
Sea benchmark Brent crude to $103 a barrel from $111 a barrel for the
second half of this year. Expecting weakness to persist, they changed
their prediction for 2014 to $105 a barrel from $112 a barrel.
The picture for U.S. benchmark WTI crude was less pessimistic,
but the bank said that bottlenecks in the crude transport system could
continue to be problematic.
"We believe there are way too many barrels in commercial and
strategic storage in the U.S., and we still see a risk of $50/bbl for
the Oklahoma grade at some point over the next 24 months."
Their forecast for WTI in 2013 was held at $91 a barrel and $92 a barrel in 2014.
Crude prices are being dragged lower by oversupply. Most
production growth is seen from countries outside the Organization of the
Petroleum Exporting Countries, the bank said, where output will grow by
820,000 barrels a day this year, versus its the previous forecast of
700,000 barrels a day. In 2014 the increase will be 910,000 barrels a
day as oppose to the 815,000 barrels a day previously predicted.
Demand, meanwhile, is still weaker-than-expected particularly
in Europe and China. Bank of America revised down its global demand
growth estimates from 0.95 million barrels a day to 0.8 million barrels a
day for 2013, and to 1.2 million barrels a day in 2014.
Lower growth in emerging markets, and the rise in oil supplies
from unconventional sources such as shale, could lead to a change in
the market structure for Brent, the analysts said, suppressing the price
to within the $90-100 a barrel band after 2014.
Front-month July Brent was recently trading at $104.11 a barrel, with Nymex WTI crude at $94.58 a barrel.