Catalytic converter – Inertia in US shale continues

As the oil market awaits a negative supply response to the sharp correction in crude prices since mid-2014, we suggest a period of inertia may be ahead, with oil production, particularly from US shale, holding up in the near term. Supporting this inertia we see falling service costs, improved operating efficiencies and significant hedging as combining to sustain near-term activity. Hence, while a price correction is likely in the medium term, we forecast crude prices to remain subdued at current levels for the remainder of 2015, for which we estimate an average crude price of $52.5/bbl for the year. As 2015 capex cuts bite, hedges unwind and funding becomes increasingly difficult to secure, we expect this will form the foundation of a recovery early in 2016, where we estimate an average of $72.5/bbl will be achieved for the full year.

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