Oil price may halve to $50 by Q3 – Credit Suisse

Brent crude oil prices could drop by almost 50% to $50 a barrel within the next three months if the eurozone crisis escalates, Credit Suisse has said.

The drop would be dependent on negative newsflow driven to a greater or lesser extent by events in Europe, analysts said, prompting a collapse in trading and global activity resulting in surplus oil supply.

Brent crude is currently trading at a settlement price of $97.14 a barrel, having fallen to a 16-month low of under $97 earlier this month on renewed concerns over global growth. The European benchmark price has shed almost 25% since early March.

The Credit Suisse note said their worst case scenario would also see the WTI crude price fall to $40 a barrel, a price level close to the lows seen in 2008, when the US benchmark fell as low as $30 a barrel at the height of the financial crisis.

Though prices may not touch those levels this year, Credit Suisse warned global imbalances are now more pronounced than in 2008 and said economic and political opportunities had been squandered in the interim.

If prices were to halve, a glut of supply would prevent Brent crude from moving beyond $80 a barrel until 2014, the bank said.

The bank’s base case is for Brent to average $125 a barrel this year, but the analysts said the reasoning behind that forecast had “evidently been shaken” and is “very optimistic on global growth”.

OPEC members meet today in Vienna and are expected to maintain their current output target of 30 million barrels, despite some members expressing concern that increased production from Saudi Arabia has been depressing prices.

 

This article was first published on Investment Week

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