The bank raised its WTI price prediction for the first quarter of 2010 to $78.60/bbl, second quarter at $85/bbl, third quarter at $88, and the final quarter $80.
This is compared with the previous projection of $70 for all four quarters.
Credit Suisse also adjusted its Brent price forecasts upwards, keeping the spread between WTI and Brent at $2.
“Higher demand estimates have trumped raised supply potential to lead to a net tightening of spare capacity relative to our prior forecasts. This is supportive of near term prices,” the bank said.
The futures strip is in the mid-80s/bbl through 2010 and slightly above $90/bbl through to 2015, it added.
Credit Suisse expects the oil demand momentum to peak in the coming quarters. Oil prices have nearly doubled in the last 12 months as the U.S. ISM manufacturing index and global international purchase (IP) momentum rapidly recovered off its lows. This has happened in the face of high spare capacity.
“We might be moving into an end game. Oil prices will likely continue to receive support from rising demand estimates as the OECD takes over from non-OECD as the source of incremental positive oil demand newsflow,” the bank said.
However, IP may be peaking. Oil prices typically stabilize or roll-over once IP has peaked. The debate will then shift to the next phase.
Demand is expected to outpace supply growth through 2013. This will lead to a tightening of spare capacity to as low as 3 million b/d by 2013.
There remains a residual risk that the oil price up-cycle reignites, if demand recovers more strongly than our raised forecasts today or if supply falls short.
“We note that OPEC stands ready to add barrels to the market if substantial oil price upside above $85/bbl materializes,” Credit Suisse said.
The bank included a “what-if” analysis that evaluates what would happen if Russian tax reform came through, if recent discoveries made their way into production, and if Iraq delivered 5 million b/d by 2017.
The analysis also included what if the market levers on demand (gas substitution and lower energy intensity) started working their magic in the OECD, China and the Middle East.
Under these circumstances, global spare capacity would at first fall to 4 million b/d in 2013-14, but then start rising sharply after 2015.
In the recovery phase, evidence to support this “what-if” might be difficult to find, but Credit Suisse is monitoring the data closely.