Deustche Bank Says $55 Oil Predicted Weeks Ago Now Seems Unreasonable

Only a few weeks after publishing the firm's 2016 outlook for the S&P 500, Deutsche Bank analyst David Bianco released a new report discussing the downside risk that weak oil prices pose to the firm's EPS estimates for this coming year.

Deutsche Bank had projected $125 S&P 500 earnings for 2016, but Bianco points out that this estimate was based on average 2016 oil prices of $55/bbl. Now that oil has logged yet another leg down following the December OPEC meeting, Bianco says that $55/bbl is unreasonable.

"A 25% rally in oil prices would result in only $40-45/bbl oil," he explained. "This is still too low for Energy sector profits to be up in 2016."

Related Link: JPMorgan: More MLP Distribution Cuts Coming In 2016

Deutsche Bank is now looking for S&P 500 2016 EPS in a range from $120-125.

In addition, the firm believes that the combination of commodity weakness and China uncertainty warrants a pause in the Federal Reserve rate hikes until June.

The SPDR S&P 500 ETF Trust SPY and the United States Oil Fund LP (ETF) USO are down 7 and 18.1 percent in the past month, respectively.

Disclosure: the author holds no position in the stocks mentioned.