Oil prices could drop again later this year as a supply glut persists, according to Jason Kenney, a Banco Santander SA analyst who accurately predicted a rebound in prices after the 2008 slump.
The current oil shock caused by the boom in U.S. shale production is reminiscent of the mid-1980s, when development of fields in the North Sea and the Gulf of Mexico caused a supply glut, Kenney, the head of European oil and gas equity research at the Spanish bank, said by phone from Edinburgh Thursday.
It differs from the 2008 collapse, which was caused by slumping demand in a recession, Kenney said.
“My gut feel is that the oil price could see a double bottom,” Kenney said. “We’ve got too much inventory” and the recent price rebound may not have taken fully into consideration the supply glut, he said.
The price of oil collapsed about 60 percent from June to January as the Organization of Petroleum Exporting Countries maintained production and the US pumped at the fastest pace in three decades.
A plunge on a similar scale happened almost 30 years ago, when crude dropped from about $30 a barrel in November 1985 to less than $10 four months later. A two-month rebound to $17 was followed by second dip to near $10.
West Texas Intermediate, the US benchmark, has recovered about 12 percent from its January 29 low as oil companies have idled a record number of drilling rigs and cut spending.
US output continues to rise and the nation’s stockpiles of crude increased to 434.1 million barrels last week, the most in weekly data starting in 1982, according to the Energy Information Administration.
“I’m not really bothered by the rig count,” Kenney said. “I’m not sure production is falling quickly enough.” The longer the oil price remains above a level that allows shale oil to keep pumping, “there’ll be technology gains and efficiency improvements so that North American shale can be developed more effectively at lower prices still,” he said.
There is also potential for Iranian crude to come back to the market and for Libyan oil disruptions to dissipate, which could put more downward pressure to prices later this year, he said.
Kenny predicted at the end of 2008, following a 75% price slump amid a global financial crisis, that Brent crude would recover by about 60% to average $60 a barrel in the following year.
The international benchmark averaged $62.67 in 2009, according to ICE Futures Europe data. In nine analyst forecasts compiled by Bloomberg News at the time, the median difference to the actual 2009 Brent price was more than $10.
Brent will average $52.50 a barrel this year, Kenney estimates. This assumption is based on the average of $50 a barrel that international oil companies he covers are using to establish their budgets for the next three years, he said. The median Brent forecast of 46 analyst estimates compiled is $61.69 a barrel for 2015.
Brent for April settlement gained $1.21, or 2 percent, to $61.26 at 9:56 a.m. New York time on the London-based ICE exchange.