Crude oil prices are expected to decline due to near term oversupply after surging more than 45% from their January lows. In Q2, supply is likely to surpass demand by almost 1.3mb/d. This will further add to the already high global inventories. This environment will not suggest the return of oil price to $100/bbl anytime soon.

Post Iran’s comments that it will not take part in the proposed production freeze with other major producing nations, hopes faded for a rapid return to balance. In April, a few of OPEC and non-OPEC nations will meet to continue discussions; however, the likelihood of any significant agreement has reduced considerably.

Although a general rebound in risk-sentiment from lower levels at the turn of 2016 has helped support crude oil price in the past month. This might easily decline in the coming quarter. Demand from China and direction of Fed’s monetary policy continue to be major concerns.

Meanwhile, the recommenced drop in US crude oil production has increased positivity regarding a possible market balance. Year-to-date US supply has declined 134 kb/d to 9.07 mb/d. With the recent rate of decline, the forecast of 0.5 mb/d drop from the levels seen in Q4 2015 looks more realistic. The significant drop in US crude oil rig rates to 2009 lows helps further drops in production in the near term.

Lower breakeven rates, increased efficiencies and the future of drilled but uncompleted wells still continue to be a major risk to above expected production. However, the conventional wisdom for now is that an immediate increase in US shale production will need crude oil prices above $55/bbl for a sustained period.