Despite Price Slide, Analysts Raise Oil Price Forecasts
Dow Jones Newswires, September 08
by Spencer Jakab
NEW YORK - Even with energy prices sliding sharply in the last month, some Wall Street analysts are stepping up to the plate with higher forecasts as they begin pointing to some permanent shifts in the market.
U.S. oil prices are off about 12% from their August peak, but soaring prices so far this year have stayed several steps ahead of normally cautious Wall Street analysts, one reason why forecast increases are coming on the heels of such large price drops.
A quick look at consensus shows how out of tune some forecasts have become. The First Call average of oil price forecasts by Wall Street analysts is $36.11, nearly 7% below the average price year-to-date of $38.52 a barrel. Prices would have to drop an unprecedented $11 a barrel, or 25%, overnight and stay there until the end of the year in order to converge with consensus.
The average forecast for 2005 is just $29.92, which assumes that prices will be 30% lower on average than they are today - a more plausible projection, but one that assumes resolution of soaring global demand and tight supply.
As the fourth quarter rapidly approaches, analysts are making up for the gap between past predictions and present reality. Credit Suisse First Boston last week raised its 2004 price forecast for WTI crude by $2.65 to $35.40 a barrel and its 2005 forecast by $2 to $27 a barrel.
Raymond James, which has long been more bullish than consensus in its oil and gas price forecasts, is once again diverging sharply from the pack following an update to its forecasts Tuesday. Their 2004 average price forecast is being raised $1 to $38.94 a barrel, assuming that prices will average about $40 in the fourth quarter and that they will be able to stay at that relatively high price throughout 2005. This is a $6 a barrel, or 17.6%, increase in their 2005 full-year oil price forecast.
More significantly, analysts are raising their long-term oil price forecasts well above what have been traditionally considered equilibrium levels.
CSFB last week raised its long-term forecast for WTI oil to $30 a barrel from $23 previously - and Raymond James, with its more bullish starting point, raised its long-term price forecast to $35 from $30.
"Our increasing optimism about longer-term oil prices stems from the fact that the world has seen a major tightening in the global supply/demand equation for oil," wrote the Raymond James team. "As rising demand, particularly from China and India, has outpaced non-OPEC supply increases, the resulting increase in OPEC production has left the world with an extremely low level of excess production capacity."
More than changes to forecasts for this year and the next, such long-term boosts to oil price assumptions could have a substantial impact on investors' valuation of energy companies and the capital spending plans of the companies themselves. |
