Brent: Not Ruling Out A Break Below USD100/bbl
BMI View: Brent looks set to weaken further and test USD100/bbl in the coming weeks. Although the USD95-100/bbl level should offer significant support in H214, the oil market surplus will continue to grow over the medium term and we see significant downside risks to our 2015 average price forecast of USD108/bbl.
We have long held the view that Brent prices will trend lower over the coming years, substantiated by our forecast for growing global oil market surpluses. However, this view increasingly looks as if it could play out sooner than we had previously anticipated. The oil market is loosening and the key driver is oversupply in the Atlantic market. The US light shale oil production boom and weak demand from the European refining sector has considerably cut demand in the Atlantic market for light-sweet crude. The ICE Brent futures market has moved into the steepest contango since 2010, reflecting the (somewhat unexpected) strong supply and wind down in demand in the oil market over July.
We expect USD95-100/bbl area to offer support in the next few months for two reasons:
Breaking Lower Font-Month Brent Crude, USD/bbl (weekly chart)