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Oil price: return to $45 barrel now ‘inevitable’

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Screen Shot 2015-06-05 at 13.56.07August 4, 2015

A “re-test” of the $45-a-barrel low for the benchmark Brent crude oil price is “inevitable” in the near future as supply prices continue to squeeze the market, an analyst arm of Fitch Ratings has said.

The comments from BMI Research, quoted by Reuters, came in the wake of major falls on Monday that saw the price dip below $50 for the first time in six months. A price of $45 would be symbolically significant in the UK as it is the level at which petrol prices below £1 a litre become a distinct possibility.

The Financial Times notes the first trading session in August brought a fall of 5.2 per cent to $49.52 as data showed global production continuing to rise, adding to oversupply concerns, with worries persisting over a manufacturing slowdown in China. Commodities markets have recovered some “poise” in Tuesday trading, the FT says in a separate report, and Brent has moved back marginally above $50.

BMI said prices would remain depressed in the coming months amid pressure from a strong dollar, weakening Chinese economy and the prospect of Iranian oil further flooding the market. “A re-test of Brent crude’s 2015 low around $45 per barrel looks inevitable given current ample market supply and intensifying bearish market sentiment toward prices,” the firm said in a note to clients.

But analysts say it is unlikely there will be a return to the significantly below $50 norms pre-2005, or the high $100-plus levels the market had become accustomed to in recent years. Instead a “mid-price era” is now looming: BMI itself said it expected prices to move back towards $60 in 2016, in line with consensus forecasts of a return to $60-$70.

In the short-term, however, the trend is down. Sabine Schels, a commodities strategist with Bank of America Merrill Lynch in London, told the Wall Street Journal “we are probably a few dollars away” from a bottom, while David Hufton, of oil brokerage PVM, told the paper “the prospects of a second half-year price rebound have evaporated”.

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