Looking next at global oil supply, we have witnessed two clearly diverging trends in recent years. In North America, the extraordinary rise in tight-oil activity propelled US crude production to a 41-year high last December. This equates to an average annual growth of one million barrels-per-day, over the past four years, driven by a major increase in drilling and completion activity.

Internationally, the picture is quite different. In spite of a continued increase in E&P activity since 2009, total supply capacity, including OPEC spare capacity, has actually remained flat. This demonstrates the increasing challenges of replenishing reserves and production from existing fields. The weakness in the international supply base was further demonstrated in 2014, when overall production capacity actually declined. And if we discount the significant production gains made in Iraq, Brazil and Russia in recent years, the weakness in the remaining international production base becomes even more evident.

So, on the supply side, the growth in North America in the past four years has been sufficient to match the increase in global demand, while production capacity in the rest of the world has remained flat, and hence steadily represented a lower share of global supply.This trend is what ultimately triggered OPEC, last fall, to shift focus from protecting oil prices to protecting market share, which has led to a 50 per cent reduction in oil prices over the past six months.

It seems clear that OPEC is determined to test the resilience of high-cost producers around the world, and particularly in North America, by letting the market dynamics determine the oil price and effectively making the high cost producers the new swing producers.The drop in oil prices is therefore not primarily driven by global overcapacity, but is instead a result of the ongoing market share battle. This can be seen by the half-a-million barrel-per-day reduction in OPEC spare capacity in recent quarters, as they have increased their marketed supply to support the fight for market share.The same volume of half-a-million barrels per day can also be seen in the build-up rate of global OECD stocks. The stock build-up is all taking place in North America, as tight-oil production is out-pacing infrastructure and refinery capacity, while international OECD stocks have remained flat over the same period.The recent deviation in the established correlation between Brent prices and OPEC spare capacity is another clear sign that we are not in a real global overcapacity situation.

Let us next take a closer look at the link between E&P capex and supply growth, and what this means for the oil price outlook.In North America, we have seen a doubling of E&P capex in tight oil over the past six years, with investment levels reaching $125 billion in 2014.These investment levels, which clearly exceeded the cash flow coming from production, even at one-hundred dollar oil, generated an annual growth in production north of one million barrels per day.With external financing becoming tighter and oil prices halved, North American operators are currently forced to dramatically cut investments in order to balance expenditures with available cash flow.The impact of these reductions is seen in the rig count, which is already down more than 45 per cent from the Q4 peak.

Given the lag between starting a new well and first production, the significant reduction in activity that started in January has yet to appear in the production numbers.The impact is expected to materialize in the coming months, according to both the EIA and IEA, first as a reduction in monthly sequential production around mid-year, and by a flattening in year-over-year monthly production towards the end of the year.Based on this, full-year North American production will still grow in 2015, but will likely be down in 2016, leaving a supply gap that needs to be filled by international producers.