Morningstar also suggests that oil prices will remain depressed, noting that “crude markets will not approach any semblance of normalcy until 2017”.
As a result, its analysts have reduced their long-term price outlook for the commodity by $5 to $70 a barrel for Brent crude and $64 a barrel for WTI, to “reflect bearish developments in recent quarters in the outlook for low-cost supply and industry-wide cost deflation”.
Morningstar analyst Stephen Simko explains: “Two key developments underpin our decision to adjust our long-term pricing outlook downward. First, cost-advantaged resources have continued growing in recent quarters thanks to ongoing productivity improvements across US tight oil plays, as well as sanctions relief that will result from the Iranian nuclear deal.
“Also, our originally anticipated point of global supply and demand coming into balance has continued to get pushed further into the future throughout 2015. This in turn has led to a collapse in near-term investment, which has increased the magnitude of cost deflation and has considerably weakened the currencies of many commodity-exporting countries.”
However, he adds that the outlook for the price of oil is more bullish longer term, on the basis that “there are forces at work on both the supply and demand side that will eventually bring the market back into balance”.
Nyree Stewart is features editor at Investment Adviser