A projection by some energy analysts, of a re-balancing in global oil supply by 2H 2016 ― with oil prices in the US$45 to US$55 per barrel range ― left investors searching for that price “trigger”. The recent oil spike from the multi-year lows reached early this year to just under US$50 per barrel, only added fillip to investment sentiments. However, those prices have since fallen back somewhat and average first quarter prices remain well below those for the two previous corresponding quarters.

Fundamentals

Current market fundamentals do not support any sustained oil price spike. The excess of global oil supply over demand has been on an upward trend since 1Q 2014; and that imbalance increased by 500,000 barrels per day between 4Q 2015 and 1Q 2016. April crude oil production by Organization of the Petroleum Exporting Countries, OPEC, was 32.64 million barrels per day, the highest in recent years, Reuters reports. Iran, fresh from a restrictive sanctions regime is expected to add about 500,000 barrels per day to the global pot before the end of the year; and Russia, the highest volume producer outside of OPEC upped her seaborne exports for April. Most of the Middle East producers ― and they boast the world’s lowest production costs ― are producing at near-peak capacities while actively expanding capacities.

In contrast, global crude oil demand growth declined somewhat in 2H 2015. While some analysts foresee a gradual rebound in 2016, recent economic data from both the United States and China, respectively the world’s largest and second-largest economies do not support such sentiment. Given the projected weak pickup in global economic growth, it is unlikely oil demand growth will match the growth in supply any time soon, barring a major supply cut.

Such a supply reduction seems more unlikely in the near term. Just last month, a supply rebalancing conference in Doha, the Qatari capital was a resounding failure; fundamental differences among principal parties to the conference remain unresolved with no indication of a resolution any time soon.

Shale Fraclog

The oil price slump has certainly dealt a severe blow to shale oil producers; even in their much-vaunted resilience, many have either lapsed or remained comatose, while some are just hobbling along. According to industry data, US oil production fell below 9 million barrels per day last month while active drilling rig count fell to a multi-year low. That said, an upside to the price slump, for these shale producers, is the gain in production efficiencies including shorter production cycles. Many analysts believe that at a sustained oil price of about US$55 per barrel, US shale producers, with a large inventory of drilled, uncompleted wells, can quickly add about 500,000 barrels per day to global supply. At sustained higher prices, even more volumes could rapidly come on stream, putting a check on upward price movements.

US Dollar

The recent oil price spike was most likely due to a weakening of the US dollar ― the commodity’s denominated currency. According to Financial Times, the US dollar fell to a 15-month low yesterday, reflecting concerns about the country’s economy.

All said, if current levels of crude oil supply are sustained, especially with producers’ strident quest for market share, crude oil prices are unlikely to show a quick and sustained rebound in the near term.