Reducing Our Oil Price Outlook
All signs point to a brutal near term but a meaningful long-term recovery.
Although we continue to believe that crude oil prices are well below the levels required to encourage sufficient investment to meet demand beyond 2017, we are reducing our long-term oil price outlook by $5 per barrel, to $70 Brent and $64 West Texas Intermediate, to reflect bearish developments in recent quarters in the outlook for low-cost supply and industrywide cost deflation.
While $5 represents a relatively small adjustment to our long-term oil price assumption, we are also adjusting our near-term activity and pricing forecasts to reflect our belief that industry oversupply is making it very likely that crude markets will not approach any semblance of normalcy until 2017. Taken together, these changes have a meaningful impact on a handful of our energy sector fair value estimates, particularly for firms that currently employ large amounts of leverage.