Oil markets are waiting for a much greater supply contraction before prices rebound, and the deeper downturn in prices will test the current pace of adjustment. With WTI dipping to $35 per barrel, it will likely spark deeper cuts to spending and drilling, which could perhaps contribute to an accelerated pace of adjustment. In other words, a sharper fall from the mid-$40s per barrel to the mid-$30s per barrel could sow the seeds of a faster rebound than we might have otherwise witnessed. Although to date the pain has been significant in the upstream exploration and production sector, things are about to get much worse. Hedges continue to roll off, removing the last bit of protection that some drillers have had up until now. “Producers have survived 2015 as they benefited from large reductions in service costs while having a significant amount of production hedged at high prices,” John […]