CRUDE OIL PRICE FORECASTING

The oil and gas industry experienced a dramatic shake-up due to a significant drop in crude oil prices. The recent rebound from the oil price crash allowed companies to recover sustained losses as earnings across the sector jumped 28%.

Nevertheless, the bright future of the industry remains rather questionable.

The Energy Information Administration in the U.S. Department of Energy has released its Short-Term Energy Outlook whereby:

  • North Sea Brent crude oil spot prices averaged $58 per barrel (b) in October, an increase of $1/b from the average in September. EIA forecasts Brent spot prices to average $53/b in 2017 and $56/b in 2018.
  • West Texas Intermediate (WTI) crude oil prices are forecast to average almost $5/b lower than Brent prices in 2018. After averaging $2/b lower than Brent prices through the first eight months of 2017, WTI prices averaged $6/b lower than Brent prices in September and October. The spread between Brent and WTI prices is expected to remain at this level through the first quarter of 2018 before narrowing to $4/b during the second half of 2018.

The 2017 International Energy Outlook, is a projected 3.0% annual global growth through 2040, compared with last year’s estimated 3.3% annual growth, according to the US Energy Information Administration.

IEO

Michael Lynch in his Forbs Article “Why You Should Be Skeptical Of Consensus That Long-Term Oil Prices Will Bounce Back” says that in general, the “expert” opinion on oil price forecasting is the trend being shown to confirm the idea that there is a consensus. This is based on a near-universal but fallacious belief that prices must rise as supplies are depleted.

Michael Lynch highlights, predictions that oil prices must recover to recent highs should be treated with great scepticism, and the fact of consensus should not be considered evidence for the reliability of the forecasts.

According to Financial Times, growth in the oil and gas industry to slow significantly over the next years.

The rating agency Moody’s said that it did not expect the industry to reap many more gains from the recovery. The agency does not expect prices to rise in the near further as most gains from cost-cutting have been realized. It means that the growth will fall to the “mid-single digit in 2018”.

FT1FT2

The rating agency Moody’s said the industry reaped all gains from recovery and the prices unlikely to rise in the near further. It means that the growth will fall to the “mid-single digit in 2018”.

The Word Bank forecasts oil prices to rise to $56 a barrel in 2018 from $53 this year as a result of steadily growing demand, agreed production cuts among oil exporters and stabilizing U.S. shale oil production.

WB

Nabtrade says that the major risk for investors in the oil and gas sector does not come from marginal surprises in timing and volumes, or from daily volatility which makes perfect timing difficult, but from the fact that more analysts might join the conclusion that US$55/bbl is now likely the new anchor, long term.

Nabtrade concludes: crude oil prices remaining range-bound for a prolonged time significantly increases the risk profile for investment opportunities in the sector, with capitulation by financial analysts on the long-term price average representing a tangible threat. Investors should adjust their strategy and exposure accordingly.

The rapid development of new technologies increased the competitiveness of renewables and made raised the level of its influence on crude oil prices.

The Guardian reports that the UK and France have recently said they will phase out sales of new petrol and diesel cars by 2040. China, the world’s biggest car market, is mulling a similar move, which would have a significant impact on oil demand.

Of the 96 million barrels of oil consumed globally each day, 60 million are used for transport, which Wood Mackenzie predicts will stall by 2030.

WM

While gasoline will peak first, the analysts expect total oil demand to plateau about 2035, as growth is hit by climate change policies and developing world economies maturing.

However, some oil firms, such as Shell, believe the peak could come in the early 2030s or potentially even late 2020s due to growth in cars powered by biofuels and batteries. The Anglo-Dutch firm believes the impact on oil demand from more fuel-efficient cars will far outweigh the impact of electric vehicles.

In general, with regards to crude oil prices outlook, supply and demand increasingly depend on technological advancement of renewables. But in recent years, geopolitical risks have become as important as ever.

The rise of populism does not suggest anything positive for any industry. Because it triggers policy of isolationism vastly reducing rage of opportunities and, therefore, significantly shrinks growth potential.

 

Advertisements