OIL UPSIDE IS CAPPED
After the recent rally in oil, what is the outlook further ahead?
In a nutshell:
- The recent rebound in Oil prices is mostly technical, fuelled by investor bullishness. Fundamental mismatches between supply and demand remain significant.
- Oversupply should persist: i/ greater elasticity of US shale supply given the stronger reactivity of producers to price changes; ii/ Saudi Arabia unlikely to cut production as it now focuses on gaining market share against the US & Russia; iii/ a deal over Iran could unleash additional supply.
- Demand to be limited by low potential growth (global deleveraging, poor demographics and lower productivity gains), ongoing improvements in energy efficiency and high sensitivity of US and Chinese demand to changes in crude prices.
- All in all, Oil prices should be capped by automatic stabilizers on both sides of the supply-demand equation. We therefore expect prices to trade within a USD 55-75 bbl (Brent) range, below historical averages, amid heightened volatility.