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Home Markets Insight Bank of America lower oil prices forecast
Bank of America lower oil prices forecast PDF Print E-mail
Written by Will Peters   
Tuesday, 25 May 2010 13:53
Oil prices to remain under pressure on back of deteriorating market conditions say Bank of America Merrill Lynch.


oil prices

Bank of America Corp (NYSE:BAC) have today said their Merrill Lynch unit have lowered the outlook for oil prices in 2010.

Analysts are lowering their average WTI and Brent crude oil forecasts for 2H 2010 to $78/bbl, from $92/bbl.

The price drop comes as the bank sees demand for oil falling on the back of a global economic slowdown stemming from the sovereign debt crisis currently creeping through Europe.

The crisis has hit new highs today on news that Spain has had to take further action to ensure the survival of four of the countries savings banks.

"The rapidly weakening Euro is a deflationary event and will likely translate into a smaller-than-expected USD global economy and lower USD oil prices. Yet despite the much reduced likelihood of a robust upswing in global economic activity, we remain cautiously optimistic that the breadth of the recovery outside Southern Europe will prevent a double-dip scenario," says a research note from Bank of America today.

Analysts to see support from oil prices coming from the developed world, with China in particular being a strong source of demand.

That said, even China is expected to cool off:

"According to our economics team, GDP growth in China has likely peaked this year at 11.9% in Q1 and will slow down to 9% in Q4. Lower productivity growth, adverse demographics and lower returns to capital, coupled with an impending reduction in the unsustainably high rate of loan growth, will reduce future potential GDP growth in China to around 9%."

Due to a rapid rise in commodity prices and a slowing in fixed asset investment, China’s import growth of commodities has already declined sharply in the past few months says Bank of America.

Oil demand falls


Since the start of 2009 Bank of America Corp have continuously pointed out major sovereign debt crisis as the main risk to their bullish view on oil prices:

"In our view, this risk could now start to play out. Given the slower global economic growth outlook ahead, we are now lowering our 2010 world oil demand growth forecasts to 1.5 million b/d (1.8%), from 2.0 million b/d prior.

"Almost all of the growth will be generated in emerging markets while we have sharply reduced our forecasts for the developed world. We now expect just 20 thousand b/d of growth in the OECD region in 2010 and 50 thousand b/d of growth in 2011."
Last Updated ( Tuesday, 25 May 2010 14:04 )