Oil prices projected to hit bottom soon

AMERICAN investment bank BofA Merrill Lynch sees oil prices finding a bottom soon and averaging slightly higher at $45 to $46 per barrel this year.

The projection of Merrill Lynch is within the level at which some economists see oil-importing Philippines still being a net beneficiary and warding off an overseas Filipino worker (OFW) crisis in the oil-exporting Middle East.

In a research note dated Feb. 18, Merrill Lynch said conditions for a floor on global oil prices were coming together: spot prices were near cash costs, Chinese yuan was depreciating, and a bumper US driving season was approaching.

“Yet it is early to call a bottom on the risk of further CNY weakness and a continued oil price war within Opec (Organization of Petroleum Exporting Countries),” the research note said.

Merrill Lynch pared its average 2016 forecast for Brent oil to $46 per barrel from $50 per barrel previously. It also reduced its outlook on WTI oil to $45 per barrel from $48 per barrel.

The investment bank projects non-OPEC supply to contract by 830,000 barrels per day in 2016, compared with an average 20-year expansion of 710,000 barrels per day.

It estimates global oil demand to increase by 1.2 million barrels per day yearly over five years at $55 to $75 per barrel and by 1.7 million barrels per day yearly at $30 per barrel.

Emilio Neri Jr., chief economist at Bank of the Philippine Islands, said Merrill Lynch’s forecast was in line with BPI’s assumption.

“We expect zero growth in OFW remittances under this central scenario. I don’t consider that a crisis because it will still give $25 billion (full year remittances). If oil stays near $30 or lower throughout 2016, though, we will probably end up with a full-year contraction in remittances. That may require a bigger adjustment for us,” Neri said.