For so long, the US was at the centre of the oil story. The advances in shale technology drove OPEC to abandon targeting a price range and focus on pumping hard to maximise market share. The idea was that US shale would crumble under OPEC's charge but it surprised everyone with its resilience. Now however US production is finally on the way down, with rig counts down 70% and production almost certainly in decline that will continue throughout 2016.

The US surprised everyone up to now by managing with far fewer rigs without production collapsing, as shown in the graph above. Quite amazingly, producers have managed to largely maintain production with a 70% fall in rigs from their 2014 peak. It's almost cruel that the focus has moved on and it's bad news for the US, with high yield bond spreads in US energy over 14%.


Now the focus is on Iran, who following the lifting of oil sanctions in mid-January are aiming to re-establish themselves as the second largest OPEC producer. This year they're aiming to ramp up exports by a whopping 1 million barrels a day, which to put it into context is about the same amount by which global oil demand is likely to rise this year and would exceed their 2011 production level, before the 2012 EU sanctions.

So far analysts are betting that they're being overly ambitious, with sources like the International Energy Agency (IEA) guessing they'll achieve only half of that target this year. However, analysts accept the risks are that they produce more than that base case.


Less discussed, but potentially just as important are the Neutral Zone operations that are jointly run between Saudi Arabia and Kuwait. Following a spat last year there's been no production but Chevron, who are involved in the region, expect operations to restart mid-year. If that was to come online sooner it would be yet another nasty blow for the oil price this quarter, with capacity of 0.5 million barrels a day.


After so much focus on the supply side, we think that these middle-eastern suppliers are the main remaining upside risks to oil supply. Once there's certainty around these two then the focus will shift to how quickly growing demand and decline of existing fields can rebalance oil markets. It feels like oil price fall has lasted a long time, and plenty of analysts are starting to bet that we've hit the bottom, but in our view there's a long way to go and plenty more twists and turns before the final whistle goes...