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Global Energy Advisory – 24th July 2015

Oil Market Update

Oil entered another bear market with prices down 20 percent since their June highs. Everywhere you look there are reasons to feel pessimistic. Iranian crude could come back online, adding around half a million barrels per day in production later this year or next. Iran will also sell off about 40 supertanker’s worth of crude sitting in storage.

But Iraq could pose another conundrum for oil markets. According to Deutsche Bank, Iraq’s oil output hit 4.1 million barrels per day in June, a surge from around 3.8 million barrels per day month earlier. Amid all the violence and instability, Iraq continues to post impressive gains in production.

Saudi Arabia also lifted output by 230,000 barrels per day in June, to a record high.

“On current trajectory, this downturn could become worse than 1986,” Martijn Rats, head of European oil and gas equity research at Morgan Stanley, wrote in an investor’s note this week. The depths of the current oil bust have surprised the investment bank. “We have been expecting the current downturn to be as severe as the one in 1986 – the worst for at least 45 years – but not worse than that.”

U.S. oil production is taking longer to adjust than many anticipated, although debt is piling up throughout the industry.

All of this points to the possibility of deeper cuts to capital spending plans for the oil sector. “Oil companies are hunkering down…

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