Major international banking conglomerate Citigroup has slashed its 2015 forecasts for Brent crude oil prices to just US$63 a barrel, down from its previous estimate of US$80.
While it's just a forecast, there are obvious implications for the earnings of Australia's oil producers who can expect a rough year if current low prices persist.
Despite the weaker Australian dollar providing some insulation against lower oil prices, Citigroup estimates that Santos Ltd (ASX: STO) will have its profit reduced by up to 77%, Oil Search Limited's (ASX: OSH) profit will slump 40%, Senex Energy Ltd (ASX: SXY) will lose up to 87% of its full-year earnings, and AWE Limited (ASX: AWE) is now predicted to swing from a profit to a full-year loss in 2015.
Although Citigroup is prevented from commenting on Woodside Petroleum Limited (ASX: WPL) due to its status as the group's adviser for the recently announced Apache takeover, investors wouldn't be far wrong if they thought Woodside was heading for a profit dip as well.
And with Brent crude trading as low as US$50 recently, well below the broker's new forecast, the situation could be even worse than Citigroup's forecasts indicate.
There are several bright spots however, with the Australian dollar tipped to fall to US$0.75 in coming months, OPEC set to reconvene in June to see how the oil markets have been affected, and reduced capital expenditure (read: exploration and development) and failing oil companies expected to have an impact on supply – which will eventually place upwards pressure on prices.
Recently, the Wall Street Journal announced that stockpiles of petroleum in the USA have climbed to their highest point ever since data collection commenced in 1990. This could indicate that supply is actually still increasing and hasn't yet plateaued – meaning more price falls could be on the way.
I'm a big fan of oil companies, and I'm watching Woodside and Senex closely in particular, waiting for them to approach something like a bottom.
As Motley Fool chief Bruce Jackson wrote a month ago, "the time to buy is not quite yet". Watch the inevitable, steady grind lower and wait for blood to be flowing in the streets.
That's when patient investors can really make a killing.