FXStreet (Delhi) – Research Team at Deutsche Bank, suggests that the focus of expectations for supply contraction in 2016 continues to be centered on the US, although other non-OPEC producers and some OPEC producers such as Iraq may also begin to suffer declines at existing investment levels. Key Quotes “The susceptibility of US supply to contract is partly a result of a relatively short lag time between drilling and production, and also the responsiveness of the industry in which drilling contracts are relatively short, lasting from six to twelve months. Thus far, drilling activity in the US has contracted by -66% from the peak, versus 26% in the remainder of non-OPEC and -14% among OPEC producers. The decline so far of 440 kb/d will be extended over the coming months. A key assumption is that rig productivity growth will remain subdued in the major basins of the Bakken, Permian and Eagle Ford as the rate of contraction in drilling activity also slows. We can observe the resulting slowdown in productivity gains beginning around August in the Permian, October in the Bakken, and in forecast figures for the Eagle Ford in December. A second and more neutral assumption is that the level drilling activity remains constant going forward, despite an average decline of nine oil-directed rigs per week since September. We can think of the risks to our model as offsetting to some degree – if rigs do continue to decline, the production outlook would certainly deteriorate but would be helped by higher gains to rig productivity. On these expectations then we find that a continued decline of US production in 2017 contributes to a more normal profile of first-half surplus followed by second-half deficit and the possibility of the first meaningful inventory draws. With OPEC potential production in 2017 of 32.4 mmb/d matching the modelled “Call on OPEC”, this suggests that the market will recognise a need to stabilise and eventually raise the level of investment in supply both in the US and globally.” For more information, read our latest forex news.