Oil & Gas UK Economic Report 2015

3. Prices and Markets

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3.1 Oil Markets and Price Trends

be noted that the average Brent price in the first half of 2015 matches the average over the last 40 years (1975 to 2014), expressed in 2014 dollars. For reference, Brent oil last sat in the $50/bbl range (in real terms) more than a decade ago in 2004. Lower prices have led to a dynamic adjustment of supply, demand, stockholding and investment flows. This process is now well under way and will continue beyond the end of 2015, given the excess supply and inventories that have built up in the market. A new equilibrium price range may eventually be found but market indications increasingly suggest that prices may persist within the current range of $45-65/bbl well beyond the end of 2015.

Prevailing Oil Market Conditions The low price volatility that prevailed in the oil and energy markets between 2011 and 2014 was finally shattered by the collapse in oil prices in the second half of 2014. From a peak of $110 per barrel (bbl) in June 2014, dated Brent slid progressively to just $48/bbl in January 2015 amid a growing over-supply in world oil markets. The over-supply has persisted so far in 2015. Brent has traded in a range of $45-65/bbl since January, averaging $58/bbl in the first half of 2015, despite a mild recovery in the second quarter. While the collapse in prices in 2014-15 marked a return of oil price volatility, it may

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Figure 1: Nominal and Real Brent Prices

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Brent Price (Nominal) Brent Price (Real)

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40 Brent Oil Prices ($/bbl)

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*2015 predicted average

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1970 1975 1980 1985 1990 1995 2000 2005 2010 2015*

Source: Argus Media, BP

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ECONOMIC REPORT 2015

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