Don’t expect an oil-price bounce

Oil prices fell victim to market jitters over Greece this week, dipping below $60 a barrel for the first time since April. But even if the market backdrop improves, oil prices look unlikely to rise from here. Prices have been treading water for months, and the outlook is hardly encouraging.

For one thing, notes Longview Economics, key producer Saudi Arabia continues to produce oil in a bid to force US shale companies out of the market by lowering prices. Meanwhile, US production “is benefiting from considerable productivity gains and cost reduction”, so the fall in prices has had less of an impact on supply than expected.

At current prices, drilling is still worthwhile for many shale producers. On the demand front, emerging markets, notably China, have slowed.

Finally, a deal between the West and Iran over the latter’s nuclear programme could soon result in a lot more oil flooding onto an already oversupplied market. One minister says Iran’s exports could jump to 2.3 million barrels per day, compared to around 1.2 million today under Western sanctions.

All this suggests that while oil probably bottomed at around $45 a barrel in February, it could drift a bit lower in the near future and won’t bounce significantly for some time.