Oil prices: near-term stabilisation, long-term rebound seen

OIL prices have been under heavy pressure for several months now. The decline started in the summer, accelerated in September and October and again gained momentum in November, after an Organization of the Petroleum Exporting Countries (Opec) meeting, where supply levels were left unchanged. As a result, Brent oil prices have dropped by more than 45 per cent.

The slide was initially triggered by two developments: disappointing economic data releases in the US, Europe and China that hurt demand expectations and oversupply, which was reconfirmed by Opec and appears to be more than enough to meet an increase in global demand. Opec's decision to not cut its oil production quota added pressure to oil prices. While some oil suppliers, such as Venezuela and Iran, hinted at a cut in oil production to halt the slide in prices, other Opec members, in particular, Saudi Arabia, did not agree. Opec kept its quota unchanged at 30 million barrels per day (mb/d). Moreover, in Opec's monthly report, it indicated that it had revised downwards its 2015 forecast for Opec oil demand. As a result, (Brent) oil prices dropped even further and are currently trading below US$65/barrel (bbl). West Texas Intermediate (WTI) is trading several dollars lower.

We have received many questions about how much further oil prices can fall. Our answer on the outlook for oil prices depends on the time horizon.