In a research note following its Jan. 5-7 Global Energy Conference in Miami, which was closed to the media, the analysts said that investor sentiment “deteriorated further” during the event for three reasons, including a view that drillers were still overly optimistic about the potential for $50 oil.
“Investors felt producers were not being responsive to $35 a barrel WTI (West Texas Intermediate crude oil) by focusing more on their agility versus potential for their production to decline,” they wrote.
Unfavorable weather and weakness in the Chinese economy also weighed on sentiment, the analysts said in a note entitled “Are we there yet?”. They also said Pioneer Natural Resources’ $1.4 billion equity offering this week “increased investor concern that financial stress is insufficient to bring oil markets back into balance”.
While the note is focused on energy companies rather than the oil market, it offers a new perspective on the dramatic 10 percent slump in crude prices this week that traders blamed on a variety of other factors, including a dive in the Chinese stock market and a sharp rise in U.S. gasoline stocks.
It also reinforces the core thesis underpinning the bank’s ultra-bearish outlook on the oil market. Its market analysts have been warning that a $20 a barrel price shock may be necessary to accelerate the slow-down in drilling and prevent global inventories from overflowing with surplus crude oil.