Oil slipped further in 2015, and has now fallen by 66% since mid-2014. Prices have ticked up in recent days amid tension between regional heavyweights Saudi Arabia and Iran, but the fundamentals suggest a sustained rebound is unlikely for now.
With overall demand growth weak, oil cartel Opec pumping at full throttle, more Iranian oil potentially coming to market this year, and US shale production barely falling, the glut looks set to endure. America’s Energy Information Administration is forecasting supply growth of 0.3% this year. Stockpiles are at near-record levels.
Saudi Arabia, which is trying to throttle unexpectedly resilient US shale producers to safeguard market share, certainly doesn’t appear to be counting on a major rebound. It is digging in for the long haul after its budget deficit hit a record 15% of GDP last year. Riyadh has raised taxes, cut spending and signalled lower subsidies for electricity, water and petrol – politically sensitive reforms it has previously avoided.