Oil & gas macro outlook – Oversupply short term, lower break-even long term

The oil markets have been in turmoil now for 16 months, with January 2016 trading the most tumultuous we have seen in years. Crude prices have plummeted to levels not seen since mid-2004 and both slowing Chinese demand growth and Iranian exports are weighing heavily on the market. We align our short-term forecasts to the EIA, which does not expect a reversal in inventory builds until H217. This reduces our forecasts for Brent in 2016 and 2017 to $40/bbl and $50/bbl respectively. Longer term, a fundamental shift in costs is likely to result in a lower break-even for marginal cost producers; this sets the base for our long-term oil price assumption. As a result, we reduce our long-term Brent assumption from $80/bbl to $70/bbl.

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