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Page added on May 18, 2016
Predictions for the change in oil price through to 2017
After a dismal start to the year, oil prices staged a partial recovery, with dated Brent Blend, the global benchmark, rising by almost 70% from a 13-year low of US$26/barrel in January to US$44/b on May 10th. The rally was driven in part by stronger economic data from China and robust gasoline demand in the US: Economist Intelligence Unit.
On the supply side successive supply disruptions (in Nigeria, Iraq, Kuwait, Libya and Canada) have also provided support, as has falling US output. The broad recovery in wider financial markets, coupled with a modest weakening of the US dollar, has also boosted sentiment towards oil. In April oil futures prices also pointed towards a nearing rebalancing of the oil market, as the contango (a situation where the oil price for future delivery is higher than the spot price) narrowed across all maturities.
Although recent price developments have tilted risks to the upside, The Economist Intelligence Unit maintains its forecast that Brent will average US$40/b in 2016, for several reasons. Notwithstanding buoyant US demand for petrol, global demand growth will slow this year owing to falling usage of heating oil (amid a generally milder winter than a year ago), slowing global economic expansion and the diminishing oil intensity of China’s economy. US shale supply is falling, but this is largely offset by rising output from OPEC’s three largest producers (Saudi Arabia, Iran and Iraq), as well as Russia. As the Doha meeting in April ended without agreement, Saudi Arabia and Russia will continue to vie for market share, pumping at record levels. Meanwhile, Iran will continue to rebuild its production following the removal of sanctions.
Although supply disruptions have attracted attention, they have done little to alter the global market balance. Indeed, according to International Energy Agency figures, supply exceeded demand by 1.54m barrels/day (b/d) on average in the first quarter of 2016, which is only mildly down from the 1.74m b/d of surplus registered in 2015. Although we expect more modest stock accumulation in the remainder of the year, we believe that market sentiment has moved ahead of fundamentals, and retain our view that a renewed dip in the oil price is likely before a more sustained recovery takes hold.
Oil prices will rise in 2017, when annual global oil consumption will exceed production for the first time since 2013, leading to stock depletion. This will reflect both slightly faster global economic growth, which will underpin oil usage, and the negative impact of several years of low prices on investment (and therefore output). In the light of this, we forecast that Brent will climb to an average of US$56/b in 2017.
The global oil market will remain in deficit in 2018, pushing prices up further. However, we expect the rally to lose steam in the second half of that year, as slower GDP growth in China (and a much lower rate of investment) will take its toll on oil consumption growth in what will then be the world’s biggest importer. China’s slowdown will also have knock-on effects on other economies and weigh on sentiment globally. On balance, we expect prices to average US$68/b that year. Continued output growth from OPEC countries, including Iran, Iraq and, significantly, Libya—where we expect some sort of political compromise to emerge, enabling a resumption of oil production—will lead supply to exceed demand again in 2019-20, especially since a forecast recession in the US in 2019 will restrict consumption growth. In line with these trends, we expect Brent to edge down to an average of US$63/b in 2019 and US$62/b in 2020.
16 Comments on "Predictions for the change in oil price through to 2017"
makati1 on Wed, 18th May 2016 6:27 pm
Need to dust off my crystal ball and make some guesses like in the above article.
Rick Bronson on Wed, 18th May 2016 9:48 pm
Its very difficult to predict the price of Oil. But if the prices cross 80 – 100 mark, then the Shale will start coming in to reduce the price.
Besides the sales of electric vehicle will rocket.
GregT on Wed, 18th May 2016 11:07 pm
“Besides the sales of electric vehicle will rocket.”
And what exactly do you believe that would solve Ricky?
rockman on Thu, 19th May 2016 6:25 am
Rick – “It’s very difficult to predict the price of Oil.: Not really: I can come very close to predicting the price of oil tomorrow. LOL. Obviously the further out the time frame the less accurate predictions will be.
So they are predicting about 18 months forward. In April 2014 oil was $100/bbl. And 10 months later it was 51% lower at $47/bbl. And then 5 months later it increased 28% to $60/bbl. And then 12 months later 69% to $28.50/bbl. And then 5 months later in May it increased 70% to $48/bbl.
Of course there were some folks (out of mucho dozens) that saw their predictions during any one of those periods be rather close. But no one (and I mean absolutely no one) came anywhere close to correctly predicting jus 3 or so of those periods. Since there’s always a wide range of GUESSES by numerous “experts” some one’s GUESS will prove to be valid. But no one has CONSISTANTLY guessed correctly over any 18 months period in the 10+ years.
No, it isn’t difficult to CONSISTANTLY predict oil prices over an even short 18 month period. It’s impossible as proven by the fact no one has even come close to doing so during at least the last decade.
dave thompson on Thu, 19th May 2016 7:34 am
How much does predicting oil price matter is my question, I would say not much. The price of oil seems to get paid by most who want it and the products produced. When the price goes to far out of whack one way or another, the price fluctuates the other way(well duh). The pertinent question becomes at what point in the fluctuation of price and supply are the wheels off the cart. The past 10 years have proved to show a wobble in the wheels that is getting worse. I suspect as the inevitable fall in production continues in unconventional supplies of fracking, off shore, and tar sands heavy crude, a price rise is inevitable. However, who will lend money to a bankrupt system of oil production that failed in the last go round?
Boat on Thu, 19th May 2016 8:16 am
makati1 on Wed, 18th May 2016 6:27 pm
Need to dust off my crystal ball and make some guesses like in the above article.
Are the doomers ready to dump the oil guru expert shorts position that oil and the world would would have collapsed by the end of 2018?
Boat on Thu, 19th May 2016 8:16 am
makati1 on Wed, 18th May 2016 6:27 pm
Need to dust off my crystal ball and make some guesses like in the above article.
Are the doomers ready to dump the oil guru expert shorts position that oil and the world would would have collapsed by the end of 2018?
shortonoil on Thu, 19th May 2016 9:46 am
Inventories have risen for 32 of the last 36 weeks. They have been rising consistently for the last two years and five months. This is in spite of the fact that oil production growth (C+C) has been less than 8% of the growth that was witnessed in the previous 45 years. The quality of oil now being produced has fallen so far that at this point it can no longer power enough economic activity to provide for its own demand. As obvious, as that statement is, it seems to have escaped the minds even the most astute analysts.
http://www.thehillsgroup.org/
joe on Thu, 19th May 2016 10:26 am
The better guess is about supply. Its a sinch that Saudi will ‘pump baby pump’. Iran will do the same. If Libya gets a government then they will come back. Im not sure about fracking. If it comes back it means high prices, if it doesnt it means supply from unstable areas. Given the choice, id pick fracking despite the obvious drawbacks, if only because, well, either way were f*8ked.
shortonoil on Thu, 19th May 2016 11:37 am
“The better guess is about supply.”
Did you miss the obvious? There is no growth in supply, and there hasn’t been for a decade. Supply is a red herring argument! If supply was the problem the amount being produced would be going up, it hasn’t and isn’t. Supply growth has been less than a third of population growth. Per capita, the world is using less and less oil. The reason is that per unit it is doing less and less work. Its called depletion, a word that also escapes the mind of the most astute analysts.
String900 on Thu, 19th May 2016 12:06 pm
Kerziwal predicted Solar dominant energy source in 12 years.
The Saudi’s aren’t dumb enough to ignore geometric growth. They will pump now. We’re never going to have another oil bubble ever again.
String900 on Thu, 19th May 2016 12:07 pm
The Solar Industry employs more people than the Housing Sector. Set your kids up as electricians and EE majors.
The world is RAPIDLY changing.
Davy on Thu, 19th May 2016 12:40 pm
Diversification Greek style:
http://www.zerohedge.com/news/2016-05-19/greek-pipeline-breakthrough-challenge-russian-gas-dominance-europe
makati1 on Thu, 19th May 2016 9:15 pm
DaveT, you understand that it is economics, not production, that is killing the oily economy. Both are failing at the same time and neither are going to survive for much longer.
james-boages on Fri, 20th May 2016 5:20 am
short nails it every time
Davy on Fri, 20th May 2016 9:46 am
This is the boring slow boil stuff that will kill us. Some here talk nuclear war because they want to pass the popcorn as the spectacular happens but it is more likely to be a slow motion train wreck. A train wreck slow or fast is deadly so pass the popcorn.
“Unintended Consequences Of Monetary Policy 101: Easy Money = Over-Capacity = Deflation”
http://dollarcollapse.com/inflation/unintended-consequences-part-1-easy-money-overcapacity-deflation/
“What actually happened was textbook, long-term, surreally-vast misallocation of capital in which individuals, companies and governments were fooled into thinking that adding new factories, stores and infrastructure at a rate several times that of population growth would somehow work out for the best.”
“China, as with so many other things, was the epicenter of this delusion. In response to the 2008-2009 financial crisis it borrowed more money than any other country ever, and spent most of the proceeds on infrastructure and basic industry. It’s steel-making capacity, already huge by 2008, kept growing right through the Great Recession, and now dwarfs that of any other country…..In the US, retailers built new stores at a pace that vastly exceeded population growth, apparently on the assumption that consumers would keep borrowing in order to buy ever-greater amounts of semi-useless stuff. And now bricks and mortar retailing is suffering a mass-die-off.”
“Cheap money sends a “borrow and spend me” signal to the markets, just as expensive money (i.e., high interest rates and government surpluses) says “save and invest me”. So when money is made artificially cheap by cluelessly expansionist governments, it leads people to overborrow and overbuild. The resulting overcapacity leads to price cuts as marginal producers sell for whatever they can get just to keep the lights on. Falling prices for individual products in the aggregate create systemic deflation. In other words, we’re getting exactly what we should have expected from “inflationary” policies — which is deflation.”
“The mass failure of marginal players in virtually every basic field. Steel mills, cement factories, shopping malls, high-cost miners, dairy farms, etc., etc., will default on their debt, fire their workers and liquidate their assets, leading to a global depression in which deflation exceeds the 25% seen in the 1930s. Or…Mass devaluation in which the world’s governments lower the value of their currencies to make their debts survivable. This will, of course, scream “borrow and spend me before I lose even more value” to the markets, thus increasing systemic leverage and producing an even bigger bust somewhere in the future.”