JEDDAH — Brent crude price is up 15% from 1Q 15, but still low in absolute terms, averaging $ 61.9 a barrel in the 2Q15, the National Commercial Bank said in its July 2015 “Saudi Economic Review”. Oil price's rebound from a six-year low in March has faltered again on signs a global surplus will continue. Brent crude price fell recently to around $56.0 a barrel on the ICE Futures Europe exchange as increased production from the Middle East to the US expanded supplies. WTI crude price closed last week 20% below the peak reached in June, meeting the definition of a bear market, to settle at around $48.0 a barrel on the NYMEX. The continued headwinds facing the oil markets signifies that rebalancing, which started when oil markets set off on its initial 60% price drop last June, has yet to run its course. Supply growth has continued unwavering, as surging OPEC output has come at a time when US shale oil supplies are still proving to be resilient despite the lower oil prices, and the same time world oil demand growth remains muted. The US shale oil is demonstrating more flexibility in terms of capital cost and production, running counter to the perception of investors, who largely see shale oil occupying the high end of the cost curve. Accordingly, as oil prices rebound, so will investment in the shale oil On the supply side, crude output in the US slipped marginally to 9.56mb/d in the week ending July 17, according to EIA. Oil rig counts, according to Baker Hughes, were down 7 to 638 rigs. Moreover, US Crude inventories rose 2.5 million barrels in the week ending July 17 to reach 463.89 million barrels, 100 million barrels above the five-year seasonal average for this week. Iran exports so far in July are 0.860mb/d, while its production is forecast to rise from March next year, expanding by 0.6mb/d by the end of 2016, as shut-in wells are reopened. In June, Iran pumped 2.85mb/d, compared with an average of 3.63mb/d in 2011, the year before the imposition of western sanctions. After the removal of sanctions, following the UN Security Council that unanimously approves Iran nuclear agreement, crude production is expected to rise to full capacity of 3.5mb/d by the end of 2016. However, incremental oil will likely enter the market in April of 2016, as Iran seeks to regain its lost market share. This would add to the record production from Saudi Arabia and Iraq, as Saudi Arabia produced 10.56mb/d in June, exceeding a previous record set in 1980, while Iraq boosted its production to 4.38mb/d last month, the highest level in records dating back to 1985 According to IEA, the Global markets remain massively oversupplied. On the demand side, OPEC forecasts incremental world oil demand to outpace projected non-OPEC supply and OPEC NGLs, resulting in demand for OPEC crude at 30.1mb/d, a projected increase of 0.9mb/d over the current year. This would imply an improvement towards a more balanced market in 2016, according to OPEC. Although low oil prices should support global growth, high debt levels in OECD countries, high unemployment rate in the Eurozone, expectation of rising interest rates in the US, and a slowing economy in China, these factors will present downside risks to OPEC's forecasts. Meanwhile, crude oil imports in China, the world's biggest energy consumer, declined 11% in May from a year earlier, according to the Beijing-based Customs General Administration, and also its shipments from Saudi Arabia fell 18% over the same period to the lowest level since August 2012. — SG
