While copper and aluminium prices were trending lower in 2014, oil prices were falling sharply. The Brent crude oil price averaged US$99/bbl in 2014, but the price began to decline in mid-June of that year. This downward trend continued until the spot price dropped close to $26/bbl in January 2016. At the end of March, 2017, Brent crude was trading at $50.75/bbl and had averaged around $52/bbl for the month, down from about $55/bbl in February.
The decrease in price from February to March may prove to be temporary. Going forward, there are two key factors in determining the trajectory of prices. Both point towards oversupply in the near term. The first concerns the November 2016 agreement in which OPEC members agreed to cut production. The agreement has held up well so far, but extending the deal beyond May 2017 will be difficult, particularly for Russia, if prices don’t firm up soon. And, if non-OPEC producers do not participate in the curtailment, it is unclear whether Saudi Arabia and the other Gulf states will want to shoulder the burden of the production cuts on their own.
Second, even with an extension of the OPEC deal, US shale production might continue to increase and partially, or even completely, replace any reductions achieved in OPEC output. Thus, there is less likelihood that the physical market will move into a meaningful deficit by 2018Q2, limiting the potential for the Brent crude price to recover to levels above US$60/bbl before late 2018. The price of Brent crude is expected to average $54/bbl in 2017, up from $44/bbl in 2016.