Barclays hacks its 2016 oil price forecast to $37 and says everything supporting a rally has disappeared

Barclays analysts have slashed their oil-price forecast for 2016 as nothing seems to suggest prices will jump soon.

With oil now trading at levels that seemed inconceivable not too long ago, Barclays’ Kevin Norrish and Michael Cohen revised their prior expectations in a note to clients on Monday.

They lowered their forecast for the average price of Brent and West Texas Intermediate crude oil — the international and US benchmarks, respectively — to $37 per barrel this year, down from $60 and $56 previously.

From the note:

“For some time now we have taken the view that conditions were falling in to place for a robust recovery in oil in 2016, potentially taking prices back above $70/barrel by year end. However, in recent weeks there has been a marked deterioration in oil market fundamentals, and global macro-economic conditions and prices have fallen further than we expected. As a result, we are lowering substantially our oil price expectations for the year ahead.”

The firm still expects oil prices will rise in the second half of the year, but from a much lower level than they thought.

On Tuesday, WTI fell to a new 12-year low of $29.93 per barrel.

Simply put, the analysts say that the current landscape, dominated by oil oversupply and a strong dollar, does not support their previous call for $60 oil this year. The analysts pointed out three main drivers for their forecast cut.

First is the 12-member oil cartel OPEC. The group did not agree on a production ceiling in December and abandoned the sway it had held on oil supply and prices. That’s besides the fact that member countries have ignored and exceeded the target for several months.

Additionally Iran is preparing to resume exporting oil once it gets the go-ahead based on conditions in its nuclear agreement, and Barclays thinks this could happen sooner than expected.

And finally US shale oil producers have adapted quite well to the drop in oil prices; low prices compelled them to produce more efficiently and cut costs, lowering the price level at which they could stay in production.

Barclays expects that there would be less demand for all this oil in 2016, as economic growth expectations also shrink.

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