23 Dec 2014
Brent may find a base below current levels in 2015 – Rabobank
FXStreet (Barcelona) - The Rabobank Team anticipates Brent oil prices to find a base below current levels at around USD 53, and expect oil prices to gradually move higher over the course of the next year.
Key Quotes
“We expect Brent oil prices to find a base below current levels at around USD 53 and we maintain the view that the long term bullish trend line should offer strong support on the downside. Further out, we expect oil prices to gradually edge higher over the course of the next year.”
“If we first exam our forecasts from a market perspective we can see that as it stands the oil market is in contango (upward sloping forwards curve) but the oil market usually trades in a state of backwardation(inverse forward curve), in fact, since 1999 the oil curve was only in contango from early 2005 to mid-2007 and from mid-2008 to late 2010.”
“The recent move into contango has occurred across the entirety of the curve as investors increasingly look to hedge oil prices further out the maturity spectrum at more attractive levels following the sharp decline. A contango curve is typical for an environment where there is an abundance of supply and prices are expected to move higher going forward.”
“Given the shape of the curve, all things being equal, oil prices will start to move higher as the current futures contract edges closer to expiry and rolls over into the new (higher priced) contract.”
“That said, given the extent of the fall it could be argued that it is surprising the market isn’t deeper into contango. Indeed, that future oil prices aren’t much higher goes someway to explain why capital expenditure in oil projects is falling so sharply as even further out the curve oil prices have fallen substantially with Dec 2018s trading at USD 75 (against nearly USD 100 in August).”
Key Quotes
“We expect Brent oil prices to find a base below current levels at around USD 53 and we maintain the view that the long term bullish trend line should offer strong support on the downside. Further out, we expect oil prices to gradually edge higher over the course of the next year.”
“If we first exam our forecasts from a market perspective we can see that as it stands the oil market is in contango (upward sloping forwards curve) but the oil market usually trades in a state of backwardation(inverse forward curve), in fact, since 1999 the oil curve was only in contango from early 2005 to mid-2007 and from mid-2008 to late 2010.”
“The recent move into contango has occurred across the entirety of the curve as investors increasingly look to hedge oil prices further out the maturity spectrum at more attractive levels following the sharp decline. A contango curve is typical for an environment where there is an abundance of supply and prices are expected to move higher going forward.”
“Given the shape of the curve, all things being equal, oil prices will start to move higher as the current futures contract edges closer to expiry and rolls over into the new (higher priced) contract.”
“That said, given the extent of the fall it could be argued that it is surprising the market isn’t deeper into contango. Indeed, that future oil prices aren’t much higher goes someway to explain why capital expenditure in oil projects is falling so sharply as even further out the curve oil prices have fallen substantially with Dec 2018s trading at USD 75 (against nearly USD 100 in August).”