1 December 2014
Iain Armstrong, Equity Analyst at Brewin Dolphin said, “We are a little surprised at the violent price reaction to the expected no-cut decision made by OPEC and suspect that the fall is partly due to the disappointing economic reports from China and Russia which has also impacted the performance of other commodities. We now think that a sustained rally back above $90 by year end is unlikely unless there is a sustained period of freezing weather across the northern hemisphere. The lower year end base for what we expect to be a very tricky first quarter for the oil price reduces the magnitude of any bounce in the price in the second half. We remain confident of a second half bounce in part due to the increased likelihood of 15-30% of US shale production either being shut-down or mothballed. In addition, several oil and gas companies outside the US are close to or already have broken their bank covenants and will be forced to cut back on capex . Finally, the global economy is a net beneficiary of lower oil prices and while the impact on demand is likely to be lower in emerging markets due to reduced subsidies to consumers, we think that it could add about 0.5mboepd to demand.”
-ENDS-
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