Crude oil prices could rise quickly in the second half of the year and may reach $70 per barrel by the end of 2015 as U.S. shale production tapers and seasonal variations increase demand, a top analyst at ratings agency Fitch said on Tuesday.
However, Alex Griffiths, the head of oil and gas research at Fitch, said it might take several years for oil to reach $80 -- the price level where supply and demand is seen as balanced based on current production costs.
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"We see U.S. shale oil as reacting most quickly to balancing the supply with demand," Griffiths told Reuters on the sidelines of a conference in Oslo.
"You essentially need shale to slow down, not drop, because demand for oil, like all commodities, is growing. Production got slightly ahead of where it needs to be, so it’s not a huge correction you need."
Brent crude was trading at some $58 a barrel on Tuesday, off lows registered earlier in the year, but still down by around a half from last June, making many new oil developments unprofitable and forcing producers, particularly in the U.S. shale market, to slash capital spending.
"Whichever way the price goes, there will certainly be multiple bounces and overshoots in both directions," Griffiths said. "We think fundamentals justify $80, because that's the marginal cost, but markets can move away from the marginal costs for a period.
"We’re talking about relatively rapid recovery later this year as shale production flattens out. There’s also a traditional seasonal demand pick up of about 1.5 million barrels per day from Q2 to Q3," Griffiths said.
The U.S. Energy Information Administration said on Monday that it expected U.S. shale production to fall by 45,000 barrels per day (bpd) to 4.98 million bpd in May -- the first such monthly decline in more than four years.
Oil prices have fallen sharply as both OPEC and U.S. production has exceeded forecasts while consumption has failed to meet projections, particularly due to slower Chinese growth.
(Reporting by Balazs Koranyi; Editing by Crispian Balmer)