Don’t Trust Wall Street On Oil

Nov 18, 2015   //   by Profitly   //   Market, Profitly  //  Comments Off on Don’t Trust Wall Street On Oil

Did Wall Street downgrade oil just as the black gold made a bottom?

While we aren’t going to start making predictions on whether oil has or has not bottomed yet, it would be pretty ironic if just days/weeks before oil hit its recent low of $44 a barrel, Wall Street finally cut their forecasts for 2015. Doing a quick Google search, you can’t find anyone out there that predicted the monstrous decline in oil. Sure, some said it could fall to $90 or even $80. But nobody, and we mean nobody, predicted oil would fall into the $40 range.

After falling 60% and dropping below $45 a barrel, oil prices have climbed $16 a barrel over the past month and Brent is now trading above $60. What’s more, almost every major bank on Wall Street downgraded oil just as the so called black gold hit its recent lows.

Goldman is hoping this isn’t the case. In a recent note, they said that the decline in the number of oil rigs in the U.S. (to the fewest since August 2011) is still not enough to halt production growth and push down prices.

“The rig count decline is still not sufficient, in our view, to achieve the slowdown in U.S. production growth required to balance the oil market,” Goldman said. “Oil prices need to remain lower in the coming quarters in order for the announced capex guidance and rig reduction to materialize into sufficiently lower production growth.”

So will this be a W or a U shaped recovery? Who knows, but below are the dates and targets of the cuts by some of the biggest firms on Wall Street.

First to downgrade was Morgan Stanley. In a report dated December 5, the bank said oil prices could fall as low as $43 a barrel in 2015. They also cut their base-case outlook for Brent to $70 from $98. Brent for January was trading around $66 a barrel at the time.

On January 4, Citi lowered their Brent outlook to $63 a barrel for 2015. Just a few weeks later, the bank came out with yet another downgrade to $54. Brent was trading around $52 on January 4 and $58 on February 9, the day of the bank’s most recent downgrade.

Next was Goldman, coming out with a pessimistic report on January 12 as oil touched $47 a barrel. Analysts at Goldman Sachs cut their 2015 Brent forecast to $50.40 a barrel from $83.75. Brent was then trading at $47.

Third is Bank of America, cutting their forecasts just three days later on January 15. Analysts at the firm lowered their average 2015 Brent price forecast to $52 per barrel from $77. Brent was trading around $48.

The downgrades started to pick up at this point, with JP Morgan chiming in four days later. The bank cut its 2015 average Brent crude price forecast to $49 a barrel from $82 a barrel. Brent was trading around $49 a barrel at the time.

Then Barclays came out with a downgrade on January 28, slashing their 2015 target to $44 from $72. Brent was then trading around $49.

So next time you want to make a trade, particularly in a volatile market like oil, proceed with caution and do your own research as well.