OREANDA-NEWS. JP Morgan lowered its 2015 and 2016 price forecast for both Nymex WTI and Brent because of weaker Asian demand and higher output.

The bank lowered forecasts for both benchmarks for the second half of this year by $16/bl. As a result, the average price expectation for this year has been reset to $48.50/bl for WTI and $54.50/bl for Brent. For the second half of the year, WTI may average $44/bl and Brent at $50/bl.

"The peak in seasonal refinery maintenance in October could push prices substantially below these levels, potentially setting new lows for the year," the bank said in a report. "Near-term downside risks to prices come from the reduced crude demand in Asia."

It cut its 2016 forecasts for both WTI and Brent by $19/bl, projecting a WTI average of $46.50/bl and Brent average of $52.50/bl. "Our balances now incorporate increased production from Opec and non-Opec producers which contrasts with softening demand growth in 2H2015," the bank said.

Most mid to large independent oil and gas producers such as Occidental, Apache and Hess have raised their output guidance for 2015 on the back of a drop in costs of services, such as drilling rigs and chemicals, and improvements in efficiency and technology. But higher production in an already oversupplied market raises the risk of prolonging the current market weakness.

"The current company earnings season suggests that operating costs reductions have been more substantial than we had anticipated and that moves to stem production at high cost fields have been stymied by meaningful cost reductions," it said, saying earlier attempts to translate the cut in capital spending to supply declines "proved inconsequential."

"We now expect lower prices in coming quarters but do not expect a meaningful pullback in production before mid-2016 outside the US."

The increase in the use of drilling rigs was "the other turning point" for its oil price expectations. The US drilling rig count rose last week by 10 to a near three-month high of 884, the highest since the 22 May level of 885, oilfield services provider Baker Hughes said.

"Perhaps ironically, the renewed sense of optimism among producers about a return to growth mode makes us incrementally bearish on the outlook for prices," it said.

JP Morgan lowered its oil demand growth forecasts by 300,000 b/d in the third quarter of this year and by 80,000 b/d in the fourth, to an average increase of 1.3mn b/d in the second half of the year. But it increased its 2016 demand growth expectations to 1.35mn b/d, as lower prices encourage consumption.

Apart from reduced demand in Asia, the potential of Iranian oil barrels coming into the market by early next year should the Iran nuclear deal go through is another near-term risk.