Oil price recovery is likely to proceed at a measured pace, with significant oversupply continuing through H1-16. Moreover, every previous recovery in oil prices since 1986 has been accompanied by an OPEC quota reduction of at least 1.1 mmb/d and as much as 4.8 mmb/d, according to Deutsche Bank.

“In this instance we expect no OPEC action and thus the recovery will depend on the relatively slower response of non-OPEC supply and global consumer demand which are now gradually becoming evident,” DB says.

The oil market stands in a mode of tension between gradually lower expectations of US oil supply, uncertainty over the timing of new Iranian volumes, and now lower forecasts of 2016 oil demand growth amidst somewhat weaker GDP estimates.

What remains clear is that although the process of rebalancing is well underway, it will be a lengthy one with the potential for relapses to the downside. “On the bright side, a fresh cycle low in the US oil-directed rig count increases our confidence around the prospects for a significant decline in US oil production in 2016.”
Source: Deutsche Bank