26 Jan 2016
Oil prices: What is driving the slump? – Commerzbank
FXStreet (Delhi) – Carsten Fritsch, Research Analyst at Commerzbank, notes that the oil prices have dropped by almost 20 percent since the start of the on the back of concern over Chinese demand, as well as more robust-than-expected oil production.
Key Quotes
"The recent price slide had been triggered by market turmoil in China, with concern over weaker demand in the second-largest oil consuming country increasing as a result.
Undoubtedly, the major drop in oil prices in recent months was driven by much higher-than expected non-OPEC oil production. Last year, Russian oil production rose to a level last seen before the collapse of the Soviet Union.
However, in coming months, low drilling activity is likely to hit US oil production considerably. Even with these productivity gains (which are now slowing), we must consider that, in shale oil formations, production per well drops much more quickly from its initial level than in conventional oil wells – by 72 percent on average in the first twelve months.
While the latest price collapse and the bearish factors outlined above have prompted us to lower our oil price forecast significantly, especially with a view to the next few months, we still expect oil prices to move up in the course of the year. By year-end, Brent should be back at USD 50 per barrel (previous forecast: USD 63).”
Key Quotes
"The recent price slide had been triggered by market turmoil in China, with concern over weaker demand in the second-largest oil consuming country increasing as a result.
Undoubtedly, the major drop in oil prices in recent months was driven by much higher-than expected non-OPEC oil production. Last year, Russian oil production rose to a level last seen before the collapse of the Soviet Union.
However, in coming months, low drilling activity is likely to hit US oil production considerably. Even with these productivity gains (which are now slowing), we must consider that, in shale oil formations, production per well drops much more quickly from its initial level than in conventional oil wells – by 72 percent on average in the first twelve months.
While the latest price collapse and the bearish factors outlined above have prompted us to lower our oil price forecast significantly, especially with a view to the next few months, we still expect oil prices to move up in the course of the year. By year-end, Brent should be back at USD 50 per barrel (previous forecast: USD 63).”