Oil Price Outlook - BBVA Research...Real Crude Oil Prices WTI, $ per barrel, 2009 Oil supply and...

Oil Price Outlook

BBVA Research USA

Houston, TX January 2016

2

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Disclaimer

Bottom Line

• Market fundamentals are behind oil price drop

• Further declines are likely

• We expect a modest rebound in 2H16-2017

• Long-run equilibrium price around $60/bbl

• Structural trends limit upside risks

4

The end of the super cycle

Real Crude Oil Prices WTI, $ per barrel, 2009

Oil supply and demand dynamics tend to produce long cycles. The recent oil price decline marks the beginning of a new era

1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 20140

20

40

60

80

100

120

140

U.S. GDP growth at 3.8%(1992-2000)

China GDP growth at 9.7%(2001-2014)

Source: Haver Analytics

Oil embargo after Yom

Kippur War (1973)

Iranian Revolution

(1979)/Iraq-Iran War begins

(1980)

Saudi Arabia increases

production to regain market share (1986)

Iraq invades Kuwait (1990)

Global financial crisis

(2007-2008)Asian financial crisis

(1997)

U.S. production peaks at 9.6m b/d

OPEC reluctance to

cut production

First Gulf War(1991)

5

The end of the super cycle

WTI Spot Price $ per barrel

The drop of 70% in oil prices since mid-2014 ends an unprecedented 12-year period of price gains driven by sustained growth of non-OECD demand and

cheap money that encouraged non-OPEC supply

Source: BBVA Research and Haver Analytics

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20150

20

40

60

80

100

120

140

160

6

Crude oil futures

Brent Crude Futures$ per barrel

WTI Crude Futures$ per barrel

Markets continue to reassess expectations to the downside

Source: Bloomberg

0

10

20

30

40

50

60

1 2 3 4 5 6 7 8 9 10 11 12Months ahead

01/21/161 month ago3 months ago6 months ago

0

10

20

30

40

50

60

1 2 3 4 5 6 7 8 9 10 11 12

Months ahead

01/21/161 month ago3 months ago6 months ago

7

What’s behind oil price dynamics?

IMF: World GDP OutlookYear-over-year % change

Oil Price vs. Demand SurpriseYear-over-year % change

According to Model Oil-KH*: Deviations from expected demand (surprise) drove the surge in the real price of oil from 2003 until 2008

* Kilian and Hicks (2013)Source: IMF WEO, Haver Analytics and BBVA Research

3.0%

3.5%

4.0%

4.5%

5.0%

2015 2016 2017 2018 2019 2020

Apr. 2013 Oct. 2013 Apr. 2014 Oct. 2014Apr. 2015 Oct. 2015 Jan 2015

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Forecast error of world GDP (lhs) Brent spot prices(rhs)

8

What’s behind oil price dynamics?According to Model Oil-G*, the drop in oil prices is mainly explained by

weaker non-OECD demand

Although declining in relevance, U.S. supply remains the 2nd most important factor in explaining the current drop in

prices

Unlike previous price regimes, financial market volatility and FX movements do little to explain significant drop in prices

The slowing Chinese “Super Cycle” likely explains around 50% of the drop in oil

prices since 2014

Oil Prices: Model Oil-G**Error Decomposition of WTI prices 12-steps ahead, %

0%10%20%30%40%50%60%70%80%90%

100%

No Imbalances1990-2003

"Super Cycle"2004-2012

Rebalancing2013-current

VIX OECD Dem. Non-OECD Dem.Non-OPEC Sup. OPEC Sup. US FX**Nominal broad-weighted exchange rates ($)

* *Model Oil-G captures global market conditionsSource BBVA Research

9


Oil Prices: Model Oil-S*Variance decomposition 12 -steps ahead, %

According to Model Oil-S*, non-OECD demand has shown increased relative importance since 2013

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1995-2003 2004-2012 2013-present

OPEC Sup. Non-OPEC Sup. OECD Dem.Non-OECD Dem. Speculative

The weight of OPEC supply has sharply increased since 2013

The magnitude of the effects from OPEC supply and non-OECD demand is more

balanced

The relative importance of OECD demand declined significantly

Oil prices have largely been driven by fundamentals instead of speculative

demand since 2004*

* Kilian, Lutz, and Daniel P. Murphy. "The Role of Inventories and Speculative Trading in the Global Market for Crude Oil." Journal of Applied Econometrics 29, no. 3 (2014): 454-478.

10


Oil Prices: Model Oil-G*In sample forecast, WTI , $ per barrel

The model anticipated a large drop in oil prices as early as the start of 2014

However, the recent decline falls in the lower range of the confidence interval

This suggests that a fraction of the price drop cannot be explained by

fundamentals

Model Oil-G correctly anticipated a significant drop in oil prices

* Model Oil-G captures global market conditionsSource BBVA Research

11

What’s next for oil prices?Our new baseline scenario implies downward revisions to the short-run

with a gradual recovery thereafter

Crude Oil Price Forecasts*Brent, $ per barrel, annual average

Crude Oil Price Forecasts*Brent, $ per barrel

*May be subject to revisionSource: BBVA Research

Baseline Upside Downside

2015 52.6 52.6 52.6

2016 30.3 45.0 20.3

2017 45.7 63.7 26.4

2018 55.7 75.7 26.8

2019 59.6 83.5 23.7

2020 59.6 87.7 21.40

20

40

60

80

100

120

2014 2015 2016 2017 2018 2019 2020

Baseline

Upside

Downside

P(x) = 60%

P(x) =20%

P(x) =20%

12

What’s next for oil prices?

2. Modest rebound in 2H16 and 2017 as non-OPEC production declines• Better economic outlook• Lagged effects from lower CAPEX • Tighter credit conditions and bankruptcies• Higher risk aversion

1. Oil prices to decline further in 1H16• OPEC reluctance to cut production• Additional supply from Iran• Resilient U.S. crude production• Dollar appreciation• Concerns on weaker economic growth

3. Limited upside/New equilibrium

• Supply correction ends• Market shares stabilize• Stronger global growth• Increased productivity and lower production costs• Greater energy efficiency• Increase reliance on renewable sources

13

Oil prices to decline further in 1H16Given OPEC’s low production costs, further price declines cannot be

ruled out

Marginal Cost Per Barrel$ per barrel

Source: BBVA Research & Knoema

0

20

40

60

80

100

120

140

S A

rab

ia

Iraq

UA

E

Alg

eria

Iran

Om

an

Qat

ar

Kaz

akh

stan

Ru

ssia

Ecu

ado

r

Ven

ezu

ela

Nig

eria

An

go

la

U.S

. DW

U.S

. Sh

ale

Bra

zil

Can

ada

San

d

Can

ada

Arc

tic

14

Oil prices to decline further in 1H16

Oil InventoriesEOP, million barrels per day

Global Oil Supply and Demand BalanceMillion barrels per day

Despite the drastic correction in prices, excess supply persists while inventories remain at all-time highs

-4

-3

-2

-1

0

1

2

3

4

2010 2011 2012 2013 2014 2015

Deficit

Surplus

6-month MA

1500

1700

1900

2100

2300

2500

2700

2900

3100

1985 1990 1995 2000 2005 2010 2015

OECD

Non-OECD


15


Supply of Crude Oil2004 = 100

Crude Oil Production by CountryMillion barrels per day

Resilient non-OPEC production exerts downward price pressures. Potential but unlikely cuts to OPEC production may have limited effects

0

2

4

6

8

10

12

USA Saudi ArabiaRussia IraqChina

80

85

90

95

100

105

110

115

120

125

OPEC Non-OPEC


16


Saudi Arabia: Foreign ReservesTotal minus gold, EOP, Billion US$

Saudi Arabia: Budget Balance and DebtAs % of GDP

Despite a fiscal breakeven of $100/bbl , Saudi Arabia can maintain its strategy of gaining market share without severely undermining its economy

0

200

400

600

80020

00

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

2010

2011

2011

2012

2013

2014

2015

• Tapping bond markets, spending cuts and privatizations could help alleviate fiscal pressures

• Low Debt/GDP (6.7% in 2015) and high levels of foreign reserves will act as a buffer for the next couple of years

Source: IMF and Haver Analytics

0

5

10

15

20

25

30

35

40

45

50

-25

-20

-15

-10

-5

0

5

10

15

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Fiscal Deficit (lhs)Debt to GDP (rhs)

IMF Projections

17


Iran: Crude Oil ProductionMillion barrels per day

Iran aims to inject an additional 1 million b/d to the market in 2016


• Tehran aims to increase supply by 2M b/d in addition to its current production of 2.8M b/d; 1M b/d within six months of the sanctions being canceled

• However, achieving an extra 2M b/d would require substantial foreign investment that is still constrained by sanctions

• Iran’s rivalry with Saudi Arabia could lead to a “price war,” with more crude pumped into the market

2.5

2.7

2.9

3.1

3.3

3.5

3.7

3.9

4.1

4.3

4.5

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Actual

Baseline

Alternative

18


Libya: Crude Oil ProductionThousand barrels per day

Iraq: Crude Oil ProductionThousand barrels per day

OPEC members such as Iraq and Libya need to sell more oil in order to rebuild their economies; cutting production makes no sense for them

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

Jan

-04

Sep

-04

May

-05

Jan

-06

Sep

-06

May

-07

Jan

-08

Sep

-08

May

-09

Jan

-10

Sep

-10

May

-11

Jan

-12

Sep

-12

May

-13

Jan

-14

Sep

-14

May

-15

0

200

400

600

800

1000

1200

1400

1600

1800

Jan

-10

May

-10

Sep

-10

Jan

-11

May

-11

Sep

-11

Jan

-12

May

-12

Sep

-12

Jan

-13

May

-13

Sep

-13

Jan

-14

May

-14

Sep

-14

Jan

-15

May

-15

Sep

-15


19

Oil prices to decline further in 1H16Brazil: Real Gross Domestic Product(SA, Chained.1995.Reais) Year-over-year % change

Russia: Real Gross Domestic Product(SA, Ch.2008.Rubles) Year-over-year % change

Venezuela: Real Gross Domestic Product(SA, .97.Bolivares) Year-over-year % change

-6%-4%-2%0%2%4%6%8%

10%

Mar

-00

Jan

-01

No

v-0

1

Sep

-02

Jul-0

3

May

-04

Mar

-05

Jan

-06

No

v-0

6

Sep

-07

Jul-0

8

May

-09

Mar

-10

Jan

-11

No

v-11

Sep

-12

Jul-1

3

May

-14

Mar

-15

-15%

-10%

-5%

0%

5%

10%

15%

Mar

-00

Jan

-01

No

v-0

1

Sep

-02

Jul-0

3

May

-04

Mar

-05

Jan

-06

No

v-0

6

Sep

-07

Jul-0

8

May

-09

Mar

-10

Jan

-11

No

v-11

Sep

-12

Jul-1

3

May

-14

Mar

-15

-30%

-20%

-10%

0%

10%

20%

30%

40%

Mar

-00

Jan

-01

No

v-0

1

Sep

-02

Jul-0

3

May

-04

Mar

-05

Jan

-06

No

v-0

6

Sep

-07

Jul-0

8

May

-09

Mar

-10

Jan

-11

No

v-11

Sep

-12

Jul-1

3

May

-14

Mar

-15

Facing economic weakness, some producers in both OPEC and non-OPEC countries will be severely affected by Saudi Arabia’s strategy; however, cutting production is not an option


20


U.S. Active Rig Count and WTIUnits and $/b

U.S. Crude Oil ProductionMillion barrels per day

Although O&G investment has reacted immediately, the expected decline in U.S. production has been mild and lagged

0

2

4

6

8

10

12Texas

North Dakota

U.S. Total


0

20

40

60

80

100

120

140

160

0

500

1000

1500

2000

2500

Rig count (rhs)

WTI (lhs)

21


U.S. Producer Price IndexNSA, January 2013 = 100

U.S. Nonfarm PayrollMining and logging employment, SA, thous.

Variable costs have adjusted rapidly, helping operators keep producing

Source: EIA and Haver Analytics

70

75

80

85

90

95

100

105

110

115

Mar

-13

May

-13

Jul-1

3

Sep

-13

No

v-13

Jan

-14

Mar

-14

May

-14

Jul-1

4

Sep

-14

No

v-14

Jan

-15

Mar

-15

May

-15

Jul-1

5

Sep

-15

No

v-15

Oil & Gas Operations Support Activities

Drilling Oil & Gas Wells Services

Hydraulic Fracturing Sand & All Other Industrial Sand-25

-20

-15

-10

-5

0

5

10

15

20


22


U.S. Capacity Utilization Rate September 2015. Refinery and tank and underground capacity, %

U.S. Stocks of Crude Oil Excluding SPREOP, Million barrels

Ample storage capacity has prevented larger cuts to production

250

300

350

400

450

500


0%10%20%30%40%50%60%70%80%

* PADD stands for Petroleum Administration for Defense DistrictsSource: BBVA Research and Haver Analytics

23


WTI and U.S. Dollar Exchange Rate$ per barrel and Mar-73=100

Oil Prices and Financial Markets$ per barrel, Index, Jul-31-64 = 100

Dollar appreciation and financial volatility have also added to the downside

80

85

90

95

100

0

20

40

60

80

100

120

140

160WTI

Real broad trade-weighted


0

20

40

60

80

100

120

140

160

0

1000

2000

3000

4000

5000

6000

7000

Shanghai Stock ExchangeComposite Index (lhs)

WTI (rhs)


24

Oil prices to decline further in 1H16The economic outlook for large emerging economies is consistent with

short-term price declines and a modest rebound afterwards

Year-over-year % changeReal GDP Growth

Source: BBVA Research, IMF & Haver Analytics

Estimates Projections

2015 2016 2017

Russia -3.7 -1.0 1.0

China 6.9 6.2 5.8

India 7.3 7.6 8.0

Brazil -3.8 -3.0 1.3

South Africa 1.3 0.7 1.8

25





• Supply correction ends• Market shares stabilize• Stronger global growth• Increased productivity and lower production costs• Greater energy efficiency• Increase reliance on renewable sources

26

Modest rebound in 2H16 and 2017

Oil Product DemandAnnual change, million barrels per day

Oil Product DemandMillion barrels per day

China and other emerging markets will continue to have a large impact on oil markets

0

10

20

30

40

50

60

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

China's total effectTotal OECDNon-OECD excl. China's effect

Source: BBVA Research & Haver

-3

-2

-1

0

1

2

3

4China's indirect effect on non-OECDChinaNon-OECD excl. ChinaU.S.OECD excl. U.S.

27



U.S. Real Private Fixed InvestmentContributions to % change by type of structure SAAR, %

In the U.S., fixed investments in O&G structures keep contracting

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

2Q10 2Q11 2Q12 2Q13 2Q14 2Q15 3Q15

Other structuresMining exploration, shafts & wellsPower and communicationManufacturingCommercial/ Healthcare 0

50

100

150

200

250

300

350

400

EDP&OCS

Other

Energy Capital Expenditures$ billion

Forecast

EDP= Exploration, drilling, production including OCSOther= Refining, Petrochem, Marketing, Pipelines, Mining & Misc

28


-700

-600

-500

-400

-300

-200

-100

0

100

U.S. E&P Median Net Debt to EBITDA

%

U.S. E&P Median Free Cash Flow (CFO-Capex)$ million

An environment of low prices will lead to further reductions in CAPEX

Source: BBVA Research and Bloomberg

0

1

2

3

4

5

6

29


0

10

20

30

40

50

60

70

Bankruptcies WTI

U.S. Bankruptcies in Oil and Gas in 2015Cumulative number of firms and $ per barrel

Higher likelihood of increasing number of bankruptcies as prices continue to go down

41 companies filled for bankruptcy in 2015

• 41 companies filled for bankruptcy in 2015

• $16.7 billion in total debt– $8.7 billion in secured debt– $8.0 billion in unsecured debt

• The Fed’s Shared National Credits (SNC) exam rated one in seven syndicated loans in oil and gas >$20 million as “classified” or in danger of defaulting, totaling $34.2 billion

Source: Oil & Gas 360, BBVA Research and Federal Reserve

30


High Yield BondsOption adjusted spreads relative to U.S. treasuries

Coupled with tighter credit standards, more limited access to credit and regulatory changes could result in a broad and deep crisis

0

200

400

600

800

1000

1200

1400

1600

Dec

-13

Jan

-14

Feb

-14

Mar

-14

Ap

r-14

May

-14

Jun

-14

Jul-1

4A

ug

-14

Sep

-14

Oct

-14

No

v-14

Dec

-14

Jan

-15

Feb

-15

Mar

-15

Ap

r-15

May

-15

Jun

-15

Jul-1

5A

ug

-15

Sep

-15

Oct

-15

No

v-15

Dec

-15

Jan

-16

Energy

Total

Share of respondents answering somewhat to very important

How important are the following actions to mitigate the risk of loan losses from oil and gas drilling/extraction?

Tightening underwriting policies on new loans or lines of credit made to firms in this sector

85%

Enforcing material adverse change clauses or other covenants to limit draws on existing credit

lines to firms in this sector60%

Reducing the size of existing credit lines to firms in this sector 85%

Restructuring outstanding loans to make them more robust to the revised outlook for energy

prices60%

Requiring additional collateral to better secure loans or credit lines to firms in this sector

65%

Tightening underwriting policies on new loans or credit lines made to firms in other sectors

30%

Source: Federal Reserve Source: Bloomberg

31


U.S. Crude Oil Production ForecastMillion barrels per day

U.S. Total Oil Production by Shale PlayMillion barrels per day

Output is adjusting in most shale plays. We expect around 1 million b/d reduction in total U.S. crude oil production in the next twelve months

0.0

0.5

1.0

1.5

2.0

2.5

December-2014

December-2015

Source: BBVA Research and EIA Source: BBVA Research

7.0

7.5

8.0

8.5

9.0

9.5

10.0

Baseline

Downside

Upside

32





• Supply correction ends• Market shares stabilize• Stronger global growth• Increased productivity and lower production costs• Greater energy efficiency• Increased reliance on renewable sources

33

Limited upside

North America Break-Even Prices (Tight Oil)$ per barrel

Once U.S. production declines and Saudi Arabia regains market share, oil prices will increase

Saudi Arabia’s Priorities

1. Become marginal producer– Tight (shale, sand, etc.) oil

producers have to be driven out of the market.

2. High oil price– Regaining market share will allow

Saudi Arabia to seek higher prices in a less competitive market.

Outlook:– The equilibrium oil price is likely to

be just below the break-even price for tight oil producers.

0

20

40

60

80

100

120

Average Break-Even Prices

Source: IHS, Wood Mackenzie, FT, and BBVA Research

34

Limited upside

Rig Count ProductivityBarrels/ day per rig

Once oil prices increase, U.S. oil producers will return to the market, limiting the magnitude of the price rebound

Source: Energy Information Administration

In the shale plays, the time between investment decisions and production is relatively short, which prevents the U.S. to be the decisive factor in sustaining a price upturn

-

100

200

300

400

500

600

700

800Bakken Eagle FordHaynesville MarcellusNiobrara PermianUtica

35

New equilibrium

Real Crude Oil Prices$ per barrel, 2016

Everything else equal, the long-run outcome of the price war and the ingenuity of the private sector could result in a price of $60/bbl.

However…

0

20

40

60

80

100

120

140

160

1946 1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016

Avg full sample

Avg 1974-present

$57 +/- $27

$44 +/- $31


36

New equilibrium

Global All-liquids Production to 2035World: Crude Oil ReservesMillion barrels

a.1) “Peak oil” is no longer relevant in an environment of abundant reserves, new players and technological advances

0

200

400

600

800

1000

1200

1400

1600

1800


Million barrels per day

Source: BBVA Research and International Energy Agency

0

10

20

30

40

50

60

70

80

90

100

1990 2011 2020 2035

Processing Gains

Unconventional Oil*

Natural Gas Liquids

Crude oil - Fields yet-to-be Found

Crude Oil - Fields yet-to-be Developed

Crude Oil - CurrentlyProducing

*Unconventional oil includes light tight oil and other.

37

New equilibrium

Shale Oil and Gas Formations

a.2) The U.S. shale revolution may be the first of many to come

38

b) China’s rebalancing will have far-reaching implications

China: GDP by Sector % GDP

0

2

4

6

8

10

12

14

16

18

20

38%

40%

42%

44%

46%

48%

50%

52%

2006 2010 2014 2015 (1Q-3Q)

Industry Services

Industry (YoY, rhs) Services (YoY, rhs)

New equilibrium

Source: BBVA Research

China: GDP and Energy Demand$tn PPP, and million tonnes of oil equivalent

Source: BBVA Research and IEA

0

3000

6000

9000

0

20

40

60

200

0

200

3

200

6

200

9

2012

2015

2018

2021

2024

2027

2030

2033

2036

2039

GDP (lhs)

Energy demand (rhs)

39

New equilibrium

Primary Energy ConsumptionQuadrillion BTU

Energy Use per $1000 of GDPKg of oil equivalent, 2011 PPP

c) Given declining energy dependence, demand from developed countries will be insufficient to bring up oil prices

Source: BBVA Research, Haver Analytics, World Bank Source: BBVA Research, Haver, EIA

50

70

90

110

130

150

170

190

210

230

World US EU OECD

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2010 2015 2020 2025 2030 2035 2040

Non-OECD

OECD

40

New equilibrium

Range and Price of Selected Electric VehiclesMiles, $

Adjusted CO2 Emissions for New Vehicles by Model YearG/mi

d) Oil and gas industry faces threat from emphasis on reducing vehicle emissions along with fuel economy / affordability of electric vehicles

Source: BBVA Research, Company Websites, U.S. Dept. of Energy*Tesla scaled for fit. Actual range is 279 at MSRP $105,000. Data provided for 2015 models of Tesla Model S-P85D, Kia Soul Electric, Fiat 500e, Nissan Leaf, Chevy Spark Electric, BMW i3, Ford Focus Electric, Smart Electric

300

350

400

450

500

550

600

650

700

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011

2014

Adj. CO23 yr Moving Average

Source: BBVA Research, EPA

Tesla*

Kia

BMW Ford

Smart

0

10

20

30

40

50

60

70

80

90

100

50 70 90

MSR

P, $

‘00

0

Range

41

New equilibrium

U.S.: Historical and Proposed Greenhouse Gas EmissionsMillion metric tons of CO2 Equivalent

China: Historical and Proposed Greenhouse Gas EmissionsMillion metric tons of CO2 Equivalent

e) COP21 pledges to reduce or moderate emissions could impact oil and gas demand from top emitters

5500

5700

5900

6100

6300

6500

6700

6900

7100

7300

7500

1990 1995 2000 2005 2010 2015 2020 2025

Historical EmissionsU.S. Projected Emissions under 2020 TargetU.S. Projected Emissions under 2025 Target

17% below 2005 levels in 2020

26-28% below 2005 levels in 2025

Source: BBVA Research, EPA, UN Framework Convention on Climate Change

2015 Target

3000

4000

5000

6000

7000

8000

9000

10000

11000

12000

13000

14000

15000

Historical Emissions

Current Policy Projections

Source: BBVA Research, Climate Action Tracker, World Resources Institute

42

New equilibrium

Net Electricity Generation by Renewables*Thousand MWh

Worldwide Energy Consumption by FuelMillion tonnes oil equivalent

f) Strong renewables activity across U.S. South and West, with worldwide consumption projected to triple by 2035

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000LiquidsNatural GasCoalNuclear EnergyHydroelectricityRenewables

Source: BBVA Research, BP

0 to 12561256 to 24422442 to 39893989 to 77477747 to 42097

*Not including hydroelectric sourcesSource: BBVA Research, EIA

0 to 12561256 to 24422442 to 39893989 to 77477747 to 42097

Bottom Line

• Market fundamentals are behind oil price drop

• Further declines are likely

• We expect a modest rebound in 2H16-2017

• Long-run equilibrium price around $60/bbl

• Structural trends limit upside risks

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