Our Opinion: 2015

Oil prices remain low

Recent market jitters over Greece brought oil prices to below $60 a barrel for the first time since April. Even if market sentiment improves, oil prices are unlikely to rise from here. Prices have been subdued for months and the outlook is not encouraging.

Longview Economics have said that key producer, Saudi Arabia, continues to produce oil in a bid to force US shale companies out of business by lowering prices. Meanwhile, US production “is benefiting from considerable productivity gains and cost reduction,” so the fall in prices has had less of an impact on supply than expected. At current prices, drilling is still worthwhile for many shale producers. On the demand front, emerging markets – particularly China – have slowed.

Finally, the recent deal between the West and Iran over its nuclear programme should soon result in a lot more oil flooding onto an already oversupplied market.  One minister says Iran’s exports could jump to 2.3 million barrels per day, compared to around 1.2 million today under Western sanctions.

All this suggests that while oil probably bottomed at around $45 a barrel in February, it could drift a bit lower in the near future and won’t bounce significantly for some time.