Despite Brent crude enjoying a slight recovery in Q2 – averaging $62 a barrel against $54 in Q1 – half of that increase has since been wiped out, with an average of $58 per barrel in this quarter so far.
There are several intertwining factors keeping a recovery at bay, though the one that weighs heaviest is Saudi Arabia pushing OPEC to keep supply at 10.5m barrels a day – 1.5m more than in November – in order to ward off non-OPEC suppliers, which will in theory eventually restore some balance to the market.
“In response to the fall we have seen the level of onshore drilling activity in the US fall by more than half in the past year, and we think that US supply will eventually go into decline,” said Will Riley, manager of the Guinness Global Energy Fund, speaking on the Brewin Dolphin’s 24 July podcast.
“Even with half as many rigs now drilling as there were last year, we are still going to see growth in US oil supply going into 2016, though it will be less than in 2015.”
This ongoing supply-side growth is one of the reasons that Nik Stanojevic, equities analyst at Brewin Dolphin, is bearish on the supply/demand outlook.
“There is a physical market surplus, production is up despite the US rig count having fallen in the same period and – while there are some bright spots – emerging markets are struggling and the overall demand picture is weak,” he explained.
Riley outlined the prospect of Iranian oil trade sanctions being lifted – which could see a 2.8m barrel daily production output re-enter the market – as another influential factor.
