Oil Outlook: WTI Expected to Hit $72 a Barrel

Deutsche Bank analyst expects prices for oil to drop.

Deutsche Bank Securities Inc analyst Paul Sankey has said he expects reduced demand to lead to WTI falling to $72 a barrel and Brent prices to dip below $90 over the next 16 months, Canada's National Post reports.

The biggest threat to oil prices, he says, is the economic slowdown in China which has been the dominant driver of global demand growth since 2000.

"The stunning strength of Chinese demand growth did more than any other single factor to reduce spare capacity in oil and challenge the supply's limited ability to respond to high prices - even after prices increased 5x," he said.

"There is no prospect of oil prices going up 5x from here; we don't think anything above $130 a barrel for Brent is sustainable, at the very most." he added.

Data from CME shows WTI contracts settling from October 2012 through March 2014 are currently trading between $94.81 and $97.54 a barrel.

Sankey also explained that he believes there is a positive correlation between oil inventories and price.

"As demand rises, price rises, risk rises, so inventories are increased. By contrast, when demand is weak, the price outlook weak, inventories will tend to be reduced, adding weakness," he said.

U.S. crude stocks fell 7.4 million barrels last week, according to the Energy Information Administration (EIA) weekly report, which given disruptions in the U.S. Gulf by Hurricane Isaac, wasn't a surprise for most analysts.

"The drawdown in crude stocks was a one-time event due to Isaac and there was no damage done to the Gulf infrastructure so the inventory report was written off," analyst Gene McGillian of Tradition Energy told Reuters.