(Wall Street Journal)This was supposed to be the year oil prices turned around.
Ten banks surveyed by The Wall Street Journal in March predicted that U.S. crude would average $50 a barrel or better in the fourth quarter. December 2015 futures contracts were selling for $63.82 a year ago.
Instead, oil is on one of its longest price routs in history, and it shows no sign of ending. Oil hasn’t settled above $50 in the U.S. since July. And in a reminder that energy busts often start out looking bad and then get even worse, analysts are rapidly ratcheting down their forecasts for 2016, and oil companies and investors are bracing for another year of pain.
How did market watchers get this so wrong? Analysts say they forgot the lesson that supply-driven downturns can last a long time.
“We haven’t seen a lot of the supply-driven oil-price declines in recent history,” said Miranda Davis, managing director at Quintium Advisors LLC, which manages $225 million. “I don’t think the world was prepared for that.”
Unlike the demand-driven price drop in 2009, which markets partly rebounded from within months, this downturn could last for years, she added.
The Organization of the Petroleum Exporting Countries surprised markets by increasing its output this year instead of cutting it. In fact, the group said Thursday that it pumped more oil in November than in any month in the past three years.
Meanwhile, producers in the U.S. and Russia proved much more resilient than expected.
U.S. production started falling in April but remains near multidecade highs. Canada, Russia, China and Norway all are expected to post annual production gains this year, according to the U.S. government’s Energy Information Administration.
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