(MENAFN- ProactiveInvestors - UK) Optimism returned to the market thus week. Uncertainty and volatility still rule so projections for stability come with a strong health warning.
Anything could unsettle the market. But with Brent crude back above US$48 and WTI holding above US$46 a barrel the market is feeling a sense of balance returning.
Falling production figures from the US and a weaker dollar have contributed to strength in the commodity market.
Many of the investment banks including Jefferies are predicting more stability in the second half of the year. It is hoping 'the current oversupply will flip into undersupply in the second half'.
Deutsche Bank meanwhile fears the impact of Iranian production and cautions that Saudi Arabia could add 350000 barrels to bring their production to 10.5 million barrels a day.
A note from investment bank Citi to clients this week said that Saudi Arabia was capable of increasing production to 11 million barrels a day. "The biggest bear risk to the oil market right now is that Iran's ramp-up accelerates and then that Saudi Arabia does the same' it added.
The UAE is likely to add a few thousand barrels after seasonal maintenance and exports from Iraq are now estimated at 3.85 million barrels a day. We can expect changes in Iraq's oil ministry soon as the Government is in the midst of a re-shuffle.
Non-OPEC production has fallen in recent months specifically in North America prompting Bank of America Merrill Lynch to review its 2017 oil price back above US$60 a barrel.
The bank sees 'non-OPEC oil supply is indeed hanging off a cliff' as it estimates the year on year contraction of global oil output to continue.
The pull back of capital expenditure and the cancellation of major projects are to blame and the bank sees 'non-OPEC oil field decline rates of 4.9 percent on average this year up from 4.2 percent in 2014.'
With such little investment available from any key players the bank is hopeful for a return of confidence in the market. 'To balance the oil market by 2020 our equity research team believes US oil & gas capex will have to increase by at least 50 percent.'
We're beginning to see first quarter results from the major energy companies and while few will be increasing capital expenditure in the coming year.
The CEO of BP Bob Dudley said he was optimistic for the future and 'robust demand' that will help rebalance the market as the company reported a US$485 million quarterly net loss this week.
BP says it might continue to cut capital spending this year to $17 billion.
Profits were down due to low commodity prices and continued costs from the ongoing fallout from the 2010 Deepwater Horizon oil spill disaster but the company saw an increase in earnings in the oil trading division delivering a US$532 profit on an underlying replacement cost basis.
ConocoPhilips cut capex a further 11 percent this week after reporting a first quarter US$1.5 billion loss.
Italy's Eni failed to meet analysts expectations with a loss of US$564 million. The French oil company managed to beat expectations making US$1.6 billion in adjusted net income in the first three months of 2016 thanks mainly to a profitable refining sector.
Exxon Mobil and Chevron will report earnings on Friday with analysts expecting losses. Shell reports next week.
The outlook for ExxonMobil remains stable despite the surprise credit rating cut this week from Standard and Poors from AAA to AA+ saying that the "company's debt level has more than doubled in recent years.
This reflects the high capital spending on major projects dividends and share repurchases that substantially exceeded internally generated cash flow".
Iran is determined to reach pre-sanction levels of 4 million barrels a day and the oil ministry has been unwilling to work with other OPEC members on a production freeze.
The competition for billions of dollars of investment will be tough in the coming months and Bank of America Merrill Lynch says Iran's production growth might not be as big a threat as many perceive.
'Maximum production capacity in Iran is set to be reached soon and we see limited scope for further increases until Iranian leaders can manage to attract fresh capital and technology to their ailing industry.' The regulatory climate in Iran is still proving to be very challenging for foreign
Oil producers will look forward with hope to a high demand this summer with the onset of the driving season.
Bank of America Merrill Lynch says that OPEC's output potential freeze a strong driving season easy money and falling US shale output should strengthen prices.
Key uncertainties could shift the market at any time as the delicate global economic picture unfolds and Middle Eastern geopolitics remain in a fragile state.
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