Analysts once believed an agreement by oil producers to inject less would send crude prices to $60 a barrel in relatively short order. Now, Credit Suisse believes prices won’t even approach that level until 2020.
The investment bank on Monday lowered its long-term price forecast for U.S. West Texas Intermediate crude by $5 a barrel, to $57.50 in 2020. Brent crude, the international benchmark contract, also got a $5 cut, to $60 a barrel in 2020.
The oil market won’t reach a lasting turning point until the third quarter of 2018, according to Credit Suisse. The bank pushed out its expectation for the long-awaited rebalancing of supply and demand until 2019.
A group of oil producers led by Saudi Arabia has cut output by 1.8 million barrels a day through March in a bid to shrink global crude stockpiles to the five-year average. Credit Suisse believes inventories will still be 120 million barrels above that level by the time the deal is scheduled to wind down.
The bank pointed to the usual suspects: Oil production from Libya and Nigeria, the two OPEC member countries exempt from the deal, rose more than expected, offsetting the output cuts. And despite throttling back production, OPEC members kept on exporting barrels at a brisk pace, which kept storage tanks full.
Meanwhile, weak growth in demand for oil in many parts of the world in the first quarter made it tougher to draw down U.S. stockpiles, according to Credit Suisse analysts.
Credit Suisse projects that OPEC, led by Saudi Arabia, will extend the production cuts for a second time, keeping them in place until U.S. stockpiles fall at least to the upper range of the five-year average.
The bank did reduce its forecast for U.S. production growth in the last quarter of this year and next. Given the lower oil prices, U.S. shale drillers will have fewer opportunities to lock in prices for future delivery with traders who expect prices to rise, Credit Suisse said.