Oil investors should brace themselves for a fall in Brent crude prices to about $88.50 a barrel from around $100 currently and make the most of a minor bounce to $110 in the very short term that offers a selling opportunity, ING Wholesale Banking Senior Technical Analyst Roelof van den Akker said on Tuesday.
Van den Akker told CNBC he expected to see the beginning of a larger correction for Brent crude and a pullback to $88.50 in the next weeks and months.
“For the very short term we should be prepared for a minor bounce into $110 which should offer an excellent selling opportunity for this longer-term correction,” he said.
In that longer term, there was even more room on the downside for Brent crude, van den Akker said, adding that a sharper correction was not unlikely and that that he would not be surprised to see a decline to around the $50 level following the minor bounce.
This could take a year or longer, he said.
Johannes Benigni, managing director of JBC Energy agreed oil demand was slowing and that prices were likely to fall in the long term.
“At the beginning of the year everyone expected (daily) demand to grow by 1.5 million barrels. Now we’re closer to a million,” he said.
Expectations for next year were not that high, according to Benigni, around 1.2 million barrels. That has slipped to some 800,000.
“The whole issue of the economy slowing down on a global basis and having an impact on Asia is key. (The fact ) that Europe and the US are not adding to oil demand growth is clear, and that was not expected in the first place. But the question is does it spill over into Asia. That is where the demand growth is coming from,” he said.
“Europe was expected to decline or stay stagnant anyway. Europe is not the growth engine in oil demand,” Benigni said.
He added that demand from among nations in the Organisation for Economic Co-operation and Development, a body of 34 major economies, was not expected to revive to levels seen in the last decade.
“In the last three months, the oil market was driven by expectations of cheap money on one side and quantitative easing ,” Benigni said. Since last week, further quantitative easing does not seem very likely.
That takes away one of the key support factors for the oil market, Benigni said. “Overall we understand the economy is looking more towards a recession…it’s not positive and that’s why oil is sliding."