Growth to slow to a crawl; recession risk rising
Insight
July 27, 2015
Oil Market Update – July 2015
After recording gravity-defying price gains in April and May that are largely denominated by correlation with the USD, oil price movements have turned bearish in June and July-to- date.
Key points
- After recording gravity-defying price gains in April and May that are largely denominated by correlation with the USD, oil price movements have turned bearish in June and July-to- date. Investor sentiment in the oil market has soured over the period on the back of a number of key international events: a sharp correction in Chinese equity markets, Greece’s high-profile political wrangling with the Troika over its debt crisis and the lead- up to the conclusion of a nuclear deal between Iran and the world’s powers. Meanwhile, the rising trend in global oil supply (despite current low prices) also constitutes a dragging force on prices. In June, Brent and Tapis indices fell by 4% and 5% respectively while WTI charted a modest 1% increase to average at US$63, US$64 and US$60 a barrel correspondingly.
- So far in July, oil prices have weakened further to average around US$58, US$59 and US$52 a barrel for Brent, Tapis and WTI respectively.
- One year on since the advent of the global oil price collapse, the expected price response from US supply has been much more contained than most analysts had expected at the start of the crash: US production is currently hovering around its record levels of 9.6mb/day (based on weekly field crude data), after an initial slowdown in March and April was quickly reversed when prices rallied in April and May. Additional supply upside risks have also now emerged from the OPEC region, with a Saudi-led production increase resulting in the organisation’s aggregate output levels exceeding their quota of 30mb/day for the 13th straight month in June. We are also likely to see a lift-off in Iranian oil output in its post-sanctions era, projected to take place somewhat moderately in the first half of 2016, before rising more substantially towards maximising its output capacity by the end of 2016.
- Our expectation of a persistent global oil glut into 2017, largely stemming from a revised projection for OPEC production in the coming year, has led us to revise our oil price forecasts throughout the entire profile moderately. We now expect oil prices to stay below USD 70 a barrel for the rest of 2015 and 2016.
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