The oil price rebounded 31% over the last three weeks after falling 57% between June 2014 and January 2015. The document analyzes whether further recovery is likely, concluding that technical factors in financial markets explained the recent rebound but are temporary. Fundamental supply adjustments from reduced investment and drilling will impact prices gradually from 2016-2017 as production declines. The analysis forecasts oil to average $56/barrel in 2015 before rising to $64/barrel in 2016 and $69/barrel in 2017.

1. Page 1 of 2
Economic Commentary
QNB Economics
economics@qnb.com
15 February, 2015
Are Oil Prices Poised For a Rebound?
The Brent crude oil price fell 57% between
June 2014 and January 2015 to a low of USD45
per barrel (/b). Over the last three weeks,
however the oil price has rebounded by 31% to
a peak of USD59/b. This poses the question
whether a further rebound is in the making,
given cutbacks in investment spending by oil
companies and falling US drilling rig counts.
The evidence suggests that these fundamental
changes are likely to affect prices only over
the medium term, while technical factors in
financial markets explain the recent rebound.
These technical factors are likely to be
temporary. We therefore do not expect a
significant further recovery in 2015. The
fundamental supply adjustments currently
taking place will, however, result in a gradual
recovery in oil prices in 2016 and 2017.
The technical factors that drove the rebound
in oil prices may be connected to the shape of
the futures oil price relative to the spot price.
As spot prices fell below USD70/b in January
2015, expectations that supply and demand
would adjust led to futures prices higher than
the spot price (the so-called contango shape of
the futures curve). The lower spot prices
became, the greater the expected increase in
future prices, resulting in the futures curve
steepening. The futures curve was steepest
when spot prices bottomed out in January—oil
for delivery in December 2017 was over
USD20/b above the spot price.
This may have pushed oil traders to profit from
buying oil on the spot market and storing it,
while selling it at higher prices on futures
markets. It also encouraged the hoarding and
stockpiling of oil. Reports have emerged that
major oil traders and Chinese oil companies
have booked super tankers to stockpile oil as
oil prices plunged and US inventories have
reached all-time highs. Furthermore, as oil
prices dropped, net short positions on futures
markets also declined. This unwinding and
reversal of speculative positions may have
played a significant role in the recent oil price
recovery, but this is unrelated to fundamental
shifts in oil supply.
Oil Futures Curves
(USD per barrel)
Sources: Bloomberg and QNB Group analysis
We do not expect this recovery in prices to
continue during the remainder of 2015. The
futures curve has flattened with the recovery
in prices, making it harder to profit from
buying oil on spot markets and selling it in the
future. Most speculative short positions have
also been unwound, resulting in less
speculative downward or upward pressures on
oil prices.
Having said that, supply and demand
adjustments are unlikely to have an impact on
prices until 2016-17. A number of major oil
companies have announced cutbacks in
investment, but many of them still expect an
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2014 2015 2016 2017 2018 2019 2020 2021
Futures curve as at
30 Jun 2014
Futures curve as at
11 Feb 2015

2. Page 2 of 2
Economic Commentary
QNB Economics
economics@qnb.com
15 February, 2015
increase in production in 2015, particularly US
shale oil producers. For example, Continental
Resources cut investment spending by 41% to
USD2.7bn, but still expects production to
increase by 20% this year. The International
Energy Agency stated in a report last week
that it expects the pullback in shale oil
production to be “limited in scope”.
Investment cutbacks are leading to lower
numbers of operational drilling rigs in the US,
but this is likely to impact production only in
2016-17. The number of operational US drilling
rigs has fallen by 21% to 1,456 so far in 2015.
However, historical data on US rig counts
appear to have minimal relationship with US
crude oil production. A falling rig count during
2012 had no visible impact on US oil
production, which continued rising steadily.
Once a well is drilled, it can take some time for
it to be developed and become operational. Oil
companies tend to have a stock of oil wells
that are drilled but are waiting to come into
full operation. Furthermore, the average
productivity of oil wells has been rising in
recent years and is expected to continue
increasing. As a result, the decline in
operational drilling rigs is only likely to impact
oil prices from 2016-17.
Oil Production and Drilling Rigs (2010-15)
Sources: Bloomberg and QNB Group analysis
In summary, we do not expect oil prices to
recover much further in 2015, averaging
around USD56/b for the full year. Falling
investment spending by oil companies should
begin to have an impact on production by
2016-17, adding some upward pressure on
prices as the supply glut is cleared. We
therefore expect prices to recover to USD64/b
in 2016 and USD69/b in 2017. These forecasts
are broadly in line with the oil futures market.
However, it is predicated on a recovery of the
world economy and oil demand, something
that remains a risk going forward.
Contacts
Joannes Mongardini
Head of Economics
+974- 4453-4412
Rory Fyfe
Senior Economist
+974-4453-4643
Ehsan Khoman
Economist
+974-4453-4423
Hamda Al-Thani
Economist
+974-4453-4646
Ziad Daoud
Economist
+974-4453-4642
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USDrilling Rig Count (left axis)
UScrudeoil production (mbarrels, right axis)