Oil

Oil: Deutsche says 2015 outlook challenging. Global GDP growth remains sub-3% vs. 5.5 to 6% in the days of 2006-08. China growth continues to slow; Russia, Abenomics, and Eurozone are weaknesses; N.America is doing fine on lower energy prices. OPEC is transferring wealth to the global consumers for time being, and technology continues to lower marginal cost of oil production. “Lower for longer” is likely. On marginal cost oil, DB highlights numbers: 1) US added 3.6m bpd to global oil supply since 2010 2) Production from a typical shale well should decline by 70% by year four 3) Wood Mackenzie says the world is oversupplied by 1.5-1.8m bpd 4) All-in cost of a producing shale oil well in N.America is US$75-80/bbl, although technology continues to lower costs throughout the system 5) Depn’ of N.American shale well is US$25-35/bbl which leaves us a cash cost of US$45-50/bbl. Based purely on economics, DB says US$50/WTI for next few years possible; or maybe Venezuela, Iran and Iraq will start to cut production.