Oil & gas macro outlook – The market is returning to equilibrium

Since the 2015 first quarter lows, light crude oil prices have risen by around 30% despite inventories rising to record levels. Rather than inventories, the market has chosen to focus on one of the sharpest drops in the US rig count on record and the potential for a weakening US production trend in the coming months. While the lows for this cycle have probably been seen, we believe the price trend could soften near term reflecting hefty inventories and buoyant OPEC supply. The issue of Iranian exports could also weigh on prices ahead of the end June deadline for a final agreement between the world’s major powers and Iran over its nuclear programme. Looking at the balance of 2015, however, we continue to expect an upward trend in prices as the market returns to equilibrium driven by slowing non-OPEC supply growth and firming demand.

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