BofA Merrill Lynch in its latest report paints a bearish picture for global Crude Oil outlook. “We remain bearish and forecast WTI prices at end of 2Q at $41, and Brent at $48,” BofA ML said.

“We forecast 2015 Brent and WTI crude oil prices to average $52 and $50/bbl. WTI and Brent could keep trading in a much tighter range in 2016, $57 and $58/bbl on average in 2016 on our projections,” the report said.

According to the report, the term structure of oil continues to weaken and inventories keep piling up, which frames the stage for lower prices in 1H15.

With oil having to “balance itself” going forward, OPEC has given up on its traditional role of keeping supply and demand in check. The cartel is now effectively dissolved. The consequences of this shift in OPEC policy are profound and long-lasting.

Since crude oil is a very cyclical commodity and demand and supply are inelastic in the short run, OPEC’s formalized policy shift will mean much more volatile oil prices going forward, with a range of possibly $80/bbl.

Iran crude exports could rise by 0.7m to 2.0m b/d by mid 2016 if sanctions are lifted, potentially taking market share from US shale in 2016. Downside pressure on forward oil prices could range from $5 to $10/bbl.

Macro Outlook

A combination of a strong USD, higher interest rates and subdued growth may keep commodity prices in check in 2015.

The rapid compression of the US current account deficit, coupled with expansive monetary policy in EU & Japan, could create some risks for EM next year.

China seems stretched on falling house prices and a rapidly depreciating Yen exchange rate. Geopolitics create both upside and downside risks.