Analyst Actions: Credit Suisse Adjusts U.S. Gas and WTI

Credit Suisse said: "In this note we mark to market our forecast of oil and US natural gas prices for the fourth quarter. Oil prices are coming in about 10% (Brent) and 20% ( WTI ) above our 4Q forecast. That also raises our 2011 average prices, and confirms one of the largest ever year-over-year oil price increases (~30% for Brent). US natural gas prices, by contrast, came in well below our forecast (down 11%).

US natural gas faces still more pressure.

Downgrading our forecast again, by about 12% across 2012 through 2013. But we also project 2013 to be a transition year. We are forecasting an inflection point in early 2013 after which prices gradually trend higher again, in response to a more "disciplined" upstream and lower production, after a painful episode of much lower prices (of an as yet highly uncertain duration).

First, in early 2012, an unusually severe collision of bearish factors seems to be progressing in slow motion. We see exceptionally soft gas fundamentals including low winter heating demand, mandatory seasonal storage cycling and a backlog of uncompleted wells. We pegged our 1Q2012 forecast 7% below current futures (which already have fallen ~20% in the last 7 weeks).

We worry that in order to reach any sort of near-term balance, the next level of coal-to-gas switching is needed to boost power-sector gas-demand which, we think, requires Henry Hub prices below $3/Mmbtu for sustained periods.

Maintaining our Brent forecast. we still like our base case forecast for 2012-2014. In general, we still see short-term risk to the downside, from seasonal factors and contagion effects in the 'real economy'. Evidently risks to either side have grown in the last few months. But we think our base case of $100 Brent in 1H2012 still reflects a balance, however wobbly.

Adjusting WTI's differential to Brent. We're adjusting our WTI differential to Brent in line with our broader view that it is a direct function of transportation costs linking inland markets with the trading hubs of the US Gulf Coast. Once the Seaway pipeline starts flowing north to south, we expect the Brent-WTI spread to narrow significantly to average $6 per barrel in 2012.

Our assumptions on U.S. midcontinent balances include fast growing supply in North Dakota and Canada, falling inland refinery demand for light sweet crude,

changing infrastructure (adding pipeline and rail 'takeaway' capacity).

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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