Oil prices will stage a gradual recovery towards the end of this year, according to a new Deutsche Bank report, which also flagged up fears over Europe’s economic recovery.
It was published on the same day a study from Oil and Gas UK (OGUK) showed the mood among North Sea companies has deteriorated.
Deutsche Bank’s report, titled Still Deep in the Woods, said the crude supply glut will persist throughout the first half of the year as Opec holds firm on output, but that the picture will soon change.
In fact, it said an adjustment in the oil market is already under way, as low crude prices cause companies to rein in their spending, which will in turn reduce supply.
The Deutsche Bank report also said the influence of oil price fluctuations on markets and economies is declining as fears over Europe’s finances become the dominant factor.
Concerns about the weakness of the European banking system threaten to restrict access bank credit, which had been the main driver of growth, it said.
If credit conditions tighten further, the European Central Bank will need further quantitative easing – a measure aimed at stimulating private sector spending and boost inflation – as early as next month.
Despite the warning, Deutsche Bank expects to the Eurozone to mount a resilient, if unspectacular, recovery driven by domestic demand.
Commenting on the prospect of an oil price recovery, Andrew Reid, managing director of energy consultancy Douglas-Westwood, said he too was confident of an upturn.
Mr Reid said: “On the oil price we too think that the market drivers will turn more favourable once we near the end of 2016.
“The capex and opex reductions we have witnessed over the past 18 month, which will continue and may be even more severe in 2016 will start to materially impact on supply during 2017-2019 period.
“Even if global demand is maintained at current levels this will put huge pressure on the markets and pricing will react favourably for industry stakeholders.
“The market will recover, and recover materially and quickly. The key question is when and for E&P and service firms in the interim it’s all about surviving to take advantage of the next, and probably most material upturn yet.”
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