WTI

Bloomberg News

Oil prices continued their relentless slide on Monday, with Brent tumbling to under $48 for the first time since the depths of the recession.

But heres a rare voice of optimism amid the gloom: Moody’s Analytics said it expects the price of crude to recover to $80 a barrel by the end of 2015 as the market comes back into balance.

“We are currently oversupplied by about 1.2 million barrels a day but the oil market is self-correcting and we expect it to balance later this year,” said Steven G. Cochrane, managing director of Moody’s Analytics.

Mr. Cochrane expects Brent, the global benchmark, to average $69 per barrel and WTI, the U.S. benchmark, to average $66 per barrel this year.

Historically, supply hasn’t outpaced demand for more than six quarters, but if production and demand remain on their current trends, there would be an oversupply for eight quarters, Mr. Cochrane said. History suggests, therefore, that there will soon have to be a change of course in the market, he said.

The biggest adjustment will come from the supply side. Most oil majors have already announced cuts in capital expenditure and smaller companies find it difficult to obtain credit, a trend further exacerbated by the expected interest rates raise by the U.S. Federal Reserve. Higher rates would make it more expensive to invest in oil exploration and production.

Demand is also expected to pick up. This will be helped by the low oil prices but also by the continuing industrialization in emerging markets. Passenger car sales in China have more than doubled in the past five years, says Moody’s Analytics.

Oil’s relentless slide – more than 55% since last summer – is caused by a mix of factors, Mr. Cochrane said.

He estimates that 50% of the price drop is due to oversupply, mostly because of increased production in the U.S. Iraq and Libya. Around 30% of the price declines are due to lower demand expectations with Europe continuing to struggle and Russia entering recession this year.

The strength of the U.S. dollar accounts for 15% of the price drop as oil, a dollar-denominated commodity, becomes more expensive for foreign buyers. Abating geopolitical risks – chiefly the risk of the Islamic State endangering Iraq’s oil production – account for 5% of oil’s slide, Moody’s says.

Goldman Sachs cut its average Brent crude forecast for 201 5 to $50.40 a barrel from $83.75, and its WTI oil forecast to $47.15 a barrel from $73.75. Société Générale also cut its Brent price forecast by $15 to average $55 a barrel in 2015 and for WTI crude by $14 to $51 a barrel, due to the buildup in oil storage and inventories in the first half of this year