Window for an oil correction is closing: Analyst

Oil pumps and drilling equipment in an oil field in Kern County, where the majority of California's oil and gas production in Shafter, California.
Brian Van Der Brug | Los Angeles | Getty Images
Oil pumps and drilling equipment in an oil field in Kern County, where the majority of California's oil and gas production in Shafter, California.

The chances of another sharp fall in the price of oil is rapidly receding, according to a notable European commodity analyst, who expects a period of stability in the second half of the year.

"The simple fact of the matter is that the window for a correction will be closing in the coming few weeks," Michael Wittner, global head of oil research at Societe Generale, said in a note released Monday morning.

He highlighted a number of reasons why prices could stabilize over the next six months, including the fact that it comes after the March-to-May quarter, which is traditionally when global crude oil supplies are built up.

Crude stockpiles – which indicate a glut in supply – would also be reduced, Wittner highlighted, as the winding down of refinery maintenance in Europe and Asia means more oil will get processed.

U.S. refineries are also expected to step up a gear and further reduce stockpiles, and Wittner said he expects months of declining U.S. crude production to further buoy prices.

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For Brent, Societe Generale sees an average price of $60 a barrel in the third quarter of 2015 and then a rise to $65 a barrel in the fourth quarter. The French bank predicts that WTI will track that price, trading at $55 a barrel before rising to $59 a barrel in the last quarter of 2015.

But the bank's analysts forecast a dip in the price of oil in 2016, as a pickup in U.S. shale spending, drilling, and well completions weigh on prices.

Brent crude futures traded flat Monday at around $65.40 a barrel, and U.S. WTI crude was also flat for the session at $59.37. This comes after strong gains last week for the commodity.

Risks of a correction

Oil prices get 'reality check': Platts
Oil prices get 'reality check': Platts   

Wittner gave some caveats to his predictions on Monday and said that he continued to include a second-quarter correction in his outlook for the commodity.

"In recent weeks, physical market reports indicate that a large overhang of Atlantic Basin light sweet crude due to sluggish sales has been weighing on prices, or threatening to do so," he warned.

"Also, the technical signals have turned bearish for Brent and WTI."

He also outlined that geopolitical risks had eased, in places like Yemen, and that improving U.S. economic data would boost the price of the dollar, and consequently dent the price of oil.

Vandana Hari, Asia editorial director at Platts, told CNBC Monday that sentiment had been hit this week as the fundamentals for oil were showing no signs of change.

"We still are sitting in an oversupply situation. Stocks are plentiful and demand is not really showing signs of strong growth from any part of the world," she said.

The price of oil collapsed from near $120 a barrel in June last year to a low of around $45 a barrel in January, although it has since bounced back to around the $60-a-barrel level.

Analysts are now contemplating oil's "new equilibrium," with a slew of market watchers predicting that prices could climb to around $70 before the end of the year.

The dramatic fall in the price of oil has been due to weak demand, a strong dollar and booming U.S. oil production, according to the International Energy Agency (IEA). OPEC's reluctance to cut its output has also been seen as a key reason behind the fall.