Barclays Raises Medium Term Oil Price Outlook, But "Crexit" Threatens to Trigger Another Financial Crisis

Barclays calculates that oil prices will peak at an average $85 per barrel by 2019

Barclays calculates that as supply shortages develop, oil prices will peak at an average $85 per barrel by 2019, compared to its earlier prediction that the peak would be $83 and arrive in 2020.

The bank added that the price will then decline to $78 in 2021.

Barclays said this week, "On the supply side, the one-two punch of capex reductions on current and future production is likely to create a shortfall in production over the coming years, and we show evidence that decline rates are already accelerating."

It added that the lower supply would be offset somewhat by reduced demand.

This medium-term view for oil differs from Raymond James' analysis that a near-term spike will be followed by moderating prices, or Morgan Stanley's conviction that there will be a more gradual rise to lower highs.

But if anything is to be gained by the conflicting opinions, it is that diverse factors make it virtually impossible to accurately predict what the market will do next, especially in a world in which so many business are so highly leveraged.

No sooner did Barclays release its revised figures than the new buzzword of "crexit" (withdrawal by lenders from credit markets due to a slowing economy and rising inflation) sent a fresh wave of anxiety coursing through the analytical world, courtesy of Standard & Poor's.

Standard & Poor's Global Ratings states in a new report that given global corporate debt reaching $62 trillion by the year 2020 and $75 trillion by 2021, a credit correction is "unavoidable," and "A worst-case scenario would be a series of major negative surprises sparking a crisis of confidence around the globe.

"These unforeseen events could quickly destabilize the market, pushing investors and lenders to exit riskier positions; if mishandled, this could result in credit growth collapsing as it did during the global financial crisis."

When this correction is supposed to occur is unclear, but presumably it would cause chaos in the oil market; however, for the time being at least, some players dare to view the future optimistically.

That is the case with Haliburton, which despite incurring a second-quarter loss say the oil market appears to be on the road to recovery.

Dave Lesar, Halliburton's CEO, reminded analysts during a conference call that "You can't underestimate the positive change in attitude," and he added that oil's earlier return to $50 a barrel "was a critical emotional milestone for our customers."

Wild optimism clashing with dire pessimism is nothing new: last year, in contrast to the International Energy Agency predicting that oil would grow modestly to $73 per barrel by 2020, Total CEO Patrick Pouyanné said investment cutting by oil producing firms could squeeze supply and send oil up to $200 per barrel within five years.