Wall Street oil analysts slash price forecasts

At least nine banks have revised their prices downwards since late September

Leading oil analysts across Wall Street have raced this month to slash their price forecasts by as much $12 a barrel as old assumptions about Saudi Arabia's readiness to defend a $100 crude are radically revised.

The downward price revisions by at least nine banks since late September, four of them in the past three days, come amid a growing sense of structural change in the oil market, as the unyielding rise in US shale oil production threatens to overwhelm tepid oil demand growth for years to come. Double-digit forecasts are now replacing triple digits.

The biggest shift stems from an abrupt change in oil policy by the world's biggest exporter, Saudi Arabia, which quietly told oil market participants to expect an extended period of lower prices, the first definitive sign that the kingdom had abandoned its de facto goal of supporting prices to focus instead on keeping market share.

On average, the nine banks have cut their forecasts by over $7.40 a barrel, unusually deep revisions that follow an unusually steep rout in prices that has accelerated this month. Global benchmark Brent has tumbled by as much as 30% since June, and fallen 12% this month alone.

"It has all happened very fast. Everyone is wondering where the last $10 fall came from," said Jan Stuart, Global Energy Economist at Credit Suisse, who was among the first to cut his forecast in late September with a note titled "get used to double digit oil prices". He put 2015 Brent at $97 a barrel.

The quick and sharp downward cuts reflect a growing realization of a sea change in the global market. After nearly a decade of worry over the scarcity of oil, some see a new era of abundance dawning, leaving Saudi Arabia and OPEC to determine where they draw a line under declining prices. So far, key members have said they are in no hurry to curb output.

"Saudi Arabia has not cut crude production or exports as we expected," Societe Generale's Global Head of Oil Research Michael Wittner wrote on Thursday. He said the kingdom views the slump in prices, while partly caused by short-term factors, as "a structural adjustment to a well supplied global market".

"Not only have the Saudis done nothing to support prices, with output and exports flat, they have essentially come out and said that they will continue to do nothing."

The French bank cut its forecast for Brent next year by $12 a barrel to $91, enough to make it the second-lowest forecast based on the previous Reuters poll in late September as well as published revisions for other banks.

BofA Merrill Lynch Global Research, previously among the most bullish banks with a 2015 forecast of $108 a barrel, heralded a "new normal" for the oil market on Wednesday, cutting its Brent view to $98 a barrel next year, while conceding that the outlook is growing increasingly fuzzy.

"The range of oil price outcomes has widened due to a more complex economic backdrop, worsening geopolitics, Ebola, and the strong dollar," BofA strategist Francisco Blanch wrote. "Yet we believe the oil market is only modestly oversupplied."