Wednesday, April 28, 2010

Credit Suisse Revises Oil Price Estimates

Credit Suisse revised its oil price estimates this month. On April 15, in a note to investors, the Swiss bank raised its 2010 oil price estimate from US$70 per barrel to $82.90. Concurrently, the 2011 estimate was raised from $70 to $80. CS analysts noted that $80 per barrel provides “a better balance of an oil price which encourages marginal investment in new production, without crimping demand during the economic recovery phase, than (our) previous forecast of $70 per barrel.”

In a related development, four days later, Bank of America Merrill Lynch noted that the spike in oil prices from $80 per barrel to $87 per barrel came along with a rapid deterioration in the term structure of the WTI market. BoA-ML analysts feel that a surge in demand for storage, as spot oil prices rally, is an unusual event. They suggest that further oil price appreciation is unlikely in the short run.

“Rising on-shore stocks around Cushing, more floating storage in the Middle East, additional non-OPEC crude oil and a partial shutdown of European air space (last week) will likely limit further oil price advances near term. We thus maintain our second quarter 2010 average Brent and WTI crude oil price forecast of $83 per barrel. Looking ahead, we remain structurally bullish and still believe in our average $92 per barrel WTI crude oil forecast for the second half of 2010,” they noted further.

Meanwhile quarterly profits at UK oil giant BP more than doubled in year over year terms, according to results published earlier today. Replacement cost profit for January to March 2010 was $5.6 billion, compared with $2.4 billion for the first quarter of 2009. The figure is also up from the $3.45 billion in profit noted over the fourth quarter of 2009.
© Gaurav Sharma 2010. Photo Courtesy © BP Plc

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