Bloomberg News

BofA Boosts First-Quarter Oil Forecast Amid Supply Scarcity

February 03, 2012

(Updates with analyst comment in third paragraph.)

Feb. 2 (Bloomberg) -- Bank of America Corp. raised forecasts for oil prices in the first quarter because of “exceptionally scarce” supplies, while warning that demand is “decelerating sharply.”

The bank boosted its estimate for Brent crude to $108 a barrel from $100, and for West Texas Intermediate to $100 from $92, in a note dated yesterday. Lower-than-expected production growth outside the Organization of Petroleum Exporting Countries combined with low interest rates are supporting prices, according to the bank. Still, output may recover during the rest of the year and demand appears weak, it said.

“Supply remains exceptionally scarce,” wrote Francisco Blanch, New York-based head of commodities research. “But demand is decelerating sharply and our supply models indicate a ramp-up in volumes as we head in the second quarter.”

Brent futures on London’s ICE Futures Europe exchange traded at about $112 a barrel today, while WTI contracts on the New York Mercantile Exchange were at $97 a barrel.

The bank kept its Brent and WTI estimates for the rest of 2012 unchanged because of the economic risks to fuel consumption.

A third round of quantitative easing by the Federal Reserve amounting to $600 billion of securities purchases would push Brent above $120 a barrel, the bank predicts.

--Editors: John Buckley, Rachel Graham

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net


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