On 30 July Moscow hosted the fourth meeting of the Russia – OPEC Energy Dialogue, which reviewed the prospects for the global oil market.

The meeting took place against the background of a two-month decline in oil prices, one reason for which is significant overproduction. The size of the supply exceeding demand is now comparable with Iran’s output – between 2 to 2.7 million barrels per day according to various estimates. The leaders – the USA, Russia and Saudi Arabia – have reached peak production, whilst Iraq and Libya have announced planned increases. Iran is expected to double the supply after sanctions are lifted.

The “price sensitivity” of US shale oil companies has decreased. Whereas a year ago their projects were based on a price of USD 70-80 per barrel, these days the base figure is USD 50 per barrel. EOG Resources, Pioneer Resources, Occidental Petroleum and Diamondback Energy are among several companies starting to plan new projects. This shows the industry has been structured and become more efficient, “closing” less profitable projects.

At the same time, major oil companies are reducing their investment activity, postponing 46 major projects worth almost USD 200 billion with recoverable reserves of about 20 billion barrels. Most of them are offshore projects in the Gulf of Mexico and off the coast of West Africa, as well as projects for the development of tar sands in Canada.

The data indicates that in 2015, and most likely in 2016, world production will be at its peak whilst investment in new production declines.

But there are positive trends. Despite some negative news in relation to the Chinese economy, the demand for oil in China remains quite stable. There is a growing demand for oil in India, with the government trying to build up long-term strategic oil reserves.

That a price war between OPEC and other producers might soon develop is suggested by the fact of meetings between the leadership of OPEC and Russia, in which the parties sought to reconcile their vision of the oil market’s prospects and coordinate strategy coupled with the recent news of Saudi Arabia’s intention to start decreasing production at the end of the year.

According to a number of foreign experts, the assessment of the Iranian factor is emotional rather than the result of real analysis. Iran will not return to the market before early 2016 and, provided the agreed understanding is approved by the US Congress and no breaches in compliance are revealed on the Iranian side, it will take several years and an investment of about USD 50 billion to restore Iran’s oil production to pre-sanctions levels.

After the price of WTI crude oil fell below USD 50 per barrel, the situation on the US market also changed. Banks expecting higher prices of USD 60-70 or even USD 80 per barrel have stepped up their financing of shale companies. As a result, in the first half of 2015 the volume of shares issued in shale oil exploration and production companies equaled the combined volume for 2008 and 2009.

However, a new wave of protracted falling prices has raised the fears of oil traders associated with US shale companies. In recent weeks, they have increased their “bearish” position to the highest level in recent years, whilst the volumes suggesting a rise in prices decreased by 28% and are now at their lowest level since 2010. In other words, oil traders are pessimistic about the prospects for growth in oil prices.

In these circumstances, it has become more difficult for shale oil companies to raise capital. Recent share issuances passed without much success, and the cost of borrowing has increased and is now regarded as cumbersome by many company leaders. For the weakest companies, access to financing may soon be cut off completely.

Almost every week, small companies file for bankruptcy, and if oil prices don’t recover in the near future, the number of such companies will increase in the medium term and could lead to a drop in production in the United States.

The fall in prices, according to American experts, will launch a new round of job cuts throughout the shale oil industry. Some of them, such as Halliburton and Baker Hughes, have already cut 27,000 jobs, which is twice more than originally stated in February 2015. But whereas a few months ago job losses were concentrated in the drilling sector and adjacent areas related to drilling, layoffs could now affect engineers and scientists – something oil companies are trying to avoid for fear of losing talented and promising staff.

According to Energy Aspects, a reaction from the supply side should not be expected before 2016. Accordingly, the OPEC quotas will probably be maintained, as OPEC Secretary General El-Badri noted at the Energy Dialogue meeting on 20 July when he said oil prices may be “frozen” at the existing low level of about USD 50 – 55 per barrel for a long time to come.