Oil price will be under $70 next year, say experts

Crude-oil priceOscarline Onwuemenyi and Kunle Kalejaye 07 September 2016, Sweetcrude, Lagos – Crude oil prices will rise next year to the “mid-$50 range,” according to veteran oil market observer and Vice Chairman, IHS Markit Ltd, Daniel Yergin.

Yergin, who won the Pulitzer prize in 1992 for his history of the industry, “The Prize: The Epic Quest for Oil, Money and Power,” said though the worst has passed for oil prices, which has remained low since last year, prices would likely not reach $60 but would stay at mid-$50 range during the year.

Also, energy forecaster for several African countries and research analyst at Eco Bank Development Company, Dolapo Oni, is of the view that prices will be well under $70, with shale gas having come to stay.

“We are not going to see $80 per barrel oil. We are not getting $70 per barrel this year; we are not getting $70 next year, may be in 2018,” Oni said in Lagos.

Crude futures traded near $48 per barrel mid-last week, a level experts still see as too low to ensure investment in the new supplies needed during the rest of the decade.

According to Yergin, the market is currently rebalancing as the global oversupply diminishes, with U.S. crude production set to fall another “couple of hundred thousand” barrels a day by the end of this year

The recovery will, however, be unaffected by any Organisation of the Petroleum Exporting Countries, OPEC, decision to freeze output, he said.

“Downturns end, it’s not a permanent thing,” Yergin said in Stavanger, Norway, at the ONS Conference. “We are in a recovery phase, and a rebalancing phase. The price level that we are at is not one that is going to provide the investments needed to meet demand needs over the next half-decade.”

While oil has climbed from the 12-year lows reached at the start of 2016, a persisting supply glut is pinning prices at half the levels of two years ago. Still, with global demand rising and oil explorers slashing hundreds of billions of dollars in investment, finding enough supply could become an issue again in coming years.

Yergin explained that it’s “too soon to say” whether the Organisation of Petroleum Exporting Countries will agree to cap output when members gather for informal talks in Algiers this month.

Oni, on his part, said now that shale gas has come to stay, prices of oil will remain low over the next three years.

Explaining the basis for his forecast, he maintained that when Saudi Arabia tried to force the shale business out of the market in recent times, the American shale drillers kept drilling even when oil price was as low as $26 per barrel, helped by bank funds.

“When the shale guys ran out of bank funds, they got equity and one thing about equity is that it is called Patient Capital. Equity can stay in business even when you are making losses for like eight years,” he said, adding that with this sustained drilling, shale gas output would continue to impact the market over the next three years.

Despite his gloomy picture for oil prices, Oni said this period of low oil prices was the best time to “jump-start Nigeria’s upstream industry by increasing oil production”.

“What we can do as a country is to increase production. And to increase production, we have to pass the Petroleum Industry Bill.

“Production is not going to come from onshore where Niger Delta militants are bombing pipelines but from offshore where PIB is constraining major investment,” he said.

The energy forecaster added that Nigeria should take advantage of low oil price to secure the services of oil servicing companies, explaining that it would be cheaper to secure their services and cheaper to get rigs for jack-ups now.

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