Crude oil price facing downward pressure, will drop below $60 a barrel before year-end, says KPMG’s Regina Mayor

My outlook for crude price remains bearish. If anything, these two announcements provide further downward pressure on Brent and I believe it will drop below $60 before the end of the year and stays there through the first half of next year.

This is because crude is finding its way to the market (for example from Iraq).

I don’t buy OPEC’s bullish pronouncement on shale output (estimated at 17 million barrels per day by 2024). I believe shale will grow, but not as extensively. The good news is that OPEC recognises that shale is a long-term phenomenon and not a production blip. But, we are seeing production in the US slow and this year should remain flat.

Permian rig counts are continuing to slide and the lack of access to capital by a number of players will have a material effect...It is generally believed that US technological innovation, which has powered tremendous production growth, is at the point of diminishing returns. The ongoing technical innovation is presumed to deliver incremental, not exponential growth.

I think it is less about what price and more about what value they can get in the market. There has been so much talk about the potential of the IPO that there is only so much time before you finally pull the trigger, otherwise the market is just going to shrug it off. The time to monetise is now, and they are still talking about significant valuations that your average oil company would be delighted to have a shot at.

By a long shot. They have been public with their financials and its amazing results that they are able to produce. But I think their country wants to monetise that asset and then be able to plough those resources back into benefitting other sectors in the country.

The market shrugged off the fact that 5 per cent of global oil supply went off line. It (the price) spiked 12 per cent in a couple of days and then it went back down. I think the market has been under reacting to supply side risks. I don’t see that as an indicator that we don’t need oil. I didn’t tie those two things together.

I do think that the markets have overly priced in demand side risk, the concerns about China and even India and have under and estimated supply side risks like the drone attacks in April and then the attack in September.

There is more bullish sentiment coming back in the market from where I sit in the US and I am bearish, I think prices stay relatively low for the next six months.

I think Brent stays in the high fifties for the next four to six months and then maybe we’ll start to see more upward pressure to push it into the sixties. But I do not see any big price bumps.

I think OPEC in December will be pretty aggressive relative to sticking with its cuts and maybe even trying to go lower. I think its fascinating that they are inviting Brazil to come to the table. Brazil’s production dwarfs many of OPEC’s numbers.

I think its a really smart move for them to try and stay relevant as they try to manage the price in the $50-60s a barrel kind of environment.

Right now, it is a very uncomfortable price level for shale producers and the US investor community is being very aggressive against shale players. So their access to capital and financing is drying up.