Oil: Price drop reflects supply concerns – Deutsche Bank

In view of analysts at Deutsche Bank, the 20% drop in oil prices since April reflects supply and not demand issues and they see limited scope for further weakness in the prices.

Key Quotes

“The 20% drop in oil prices attracted much attention

− “Bear market” headlines

− Concern over growth, inflation, risk implications”

“This sell-off is primarily supply-driven, tied to a run of supply-related news and data points

− US inventory build surprise in early June

− Rising output from exempt OPEC countries

− Upward revision to OECD oil surplus projections, signalling much lower surplus reduction in 2018”

“Scope for further weakness is limited...

− Despite several episodes of weakness, Brent oil has not broken below $40/bbl in over a year

...Though it may be some time until prices rebound

− US shale producers are the marginal producers − Hedging temporarily shields producers from lower prices 

− Prices need to remain low for some time in order to trigger a supply cutback”