Oil & Gas – Macro Outlook: Swimming in oil

The oil market has finally succumbed to fundamental forces and a strong dollar over the past three months or so. Recently, Brent and WTI have been down almost 20% from the June highs. Significantly, geopolitical issues have been downplayed and instead the market has focused on surging production growth in North America and lacklustre demand. The market has indeed been swimming in oil. OPEC will probably attempt to cut production in the coming months but is likely to have difficulty in accommodating non-OPEC production growth plus rising production in Libya and potentially in Iraq and Iran. We believe OPEC has lost control of the market much as in the second half of the 1980s with the game changer this time around being the US shale revolution and the Alberta oil sands. Near to medium term the outlook remains bearish for oil prices.

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