Oil prices likely to recover this year

[Correction: The article has been re-produced with due credits]

Recent speculative reports that Saudi Arabia could slash oil production by up to 5% if Russia follows a similar path are quite important to be considered as these two countries each produce approximately 10 million barrels per day.

Most of the recent surge seen in OPEC supply has been tracked to Iraq, which suggests improving local conditions. It’s important to note here that there has been a significant fall in the number of active drilling rigs in the US as well as shale production.

There are ample signs that show that the more affluent Gulf producers are putting up with lower prices to guard their market share. Furthermore, while it was widely believed that lower prices reflect weakness in the global economic conditions, demand for oil rose in H2 2015. This in turn suggests that oil prices will further recover, without the need for any agreement between key producers.

"The upshot is that a sustained recovery in oil prices will have to be built on stronger foundations than comments from one or two Russian officials. Our end-2016 forecast of a rebound to $45 relies instead on cuts in non-OPEC supply, led by falls in US production, and on a further improvement in global demand. And for now, we are sticking with our forecast of $30 for the end of the current quarter", said Capital Economics in a research note to its clients.