Oil prices have steadied below $49 a barrel after a volatile day with North Sea Brent and US crude oil dipping towards near six-year lows as another big US bank slashed its oil price forecasts.
Bank of America Merrill Lynch cut its crude oil forecasts, saying Brent could go as low as $31 by the end of the first quarter of 2015. "Stocks all over the world are building at a very fast rate," the bank analysts said in a note to clients, saying very high inventories would make any sharp recovery in prices much less likely.
Brent crude was down 26 cents a barrel at $48.43 a barrel by the afternoon, at a small discount to US crude, which was trading at $48.58 a barrel, up 10 cents. The discount for North Sea crude oil reflected a very weak seaborne spot oil market, traders said. Both crude oil benchmarks hit their lowest levels for almost six years this week on a global oversupply of high quality oil.
The front-month Brent futures contract was due to expire yesterday and traders said investors who had sold at higher levels in recent days and weeks were buying back futures to take profit after recent heavy price falls. This provided some support for crude oil, traders said.
A weak dollar also helped. The dollar fell against a basket of major currencies yesterday after the Swiss National Bank abandoned a cap against the euro, pushing the Swiss currency up sharply and depressing the euro.
Meanwhile BP has announced 300 job cuts in its North Sea operations. The British company employs nearly 4,000 people in the North Sea, with a further 11,000 elsewhere Britain. BP said in December it would cut thousands of jobs across its global oil and gas business following steep falls in oil prices.
The oil giant has warned that plans to streamline its business will cost it $1billion over the next year. The restructuring bill will reflect the need to downsize its operations following $43 billion worth of divestments since the Gulf of Mexico disaster in 2010. The move to simplify the business comes with the price of oil now down 40 per cent below its level last year.
Other news was also mostly negative for oil. In its monthly report, the Organisation of the Petroleum Exporting Countries (Opec) forecast demand for the group’s oil would drop to 28.78 million barrels a day in 2015, down 140,000 barrels a day from its previous expectation.
Opec also trimmed its projection for the rate of growth in non-OPEC supply partly due to a slowdown in the US shale boom. However it still expects US oil production to increase by almost one million barrels a day even with the much lower oil prices. – Reuters, Bloomberg
