Oil lost half of its value in seven months but there are recent signs that prices have bottomed out.
After hitting $100 a barrel in July, US crude oil has been on a downward spiral, sinking to below $44 a barrel in late January, the first time it hit that mark since April 2009.
Many economists remain pessimistic about prices this year, due to a combination of factors, such as weak economic activity coupled with a switch away from oil to other fuels.
The unwillingness by the Saudis and other Gulf countries to cut off production and sacrifice their own market share to restore the price is another.
And now the US has become the world’s largest oil producer. While the US does not export crude oil, it imports less, which is creating more supply globally and hurting prices.
Still, both US crude and Brent rallied past the $50 per barrel mark in the first week of February.
OCBC Bank responded by releasing research on February 6 suggesting oil production tapering should support prices for the rest of the year.
A number of producers have announced capital expenditure cuts — Royal Dutch Shell will cut $15 billion in the next three years while Chevron Corp will cut $5 billion this year. “The energy and supplying industries area already scaling back payrolls in reaction to the collapse in oil prices,” OCBC’s research said citing an ADP research report.
Indeed, OCBC argues that worries over the oil slump are overdone, arguing that some tapering in oil supply should give oil prices a boost this year. Its forecasts oil will rebound by year-end to between $75 - $80 per barrel.