Tales of the Unexpected

A look ahead at the next two years
This article appeared in Vol. 11, No. 1 - 2015


The Brent oil price is expected to be marginally lower, at US$106/barrel in 2015, down from US$108/barrel in 2013. Non-OPEC oil production will increase more than growth in demand until the global economy and consequent demand for oil accelerate. The OPEC buffer capacity is expected to increase, resulting in a more balanced market and less upward price pressure. With significant risk of supply-side disruptions in oil-producing countries, oil prices could end up higher than estimated. Oil price volatility will remain low.

Global oil consumption growth in 2013 was about 1.2 MMbpd, as the US economy shifted into a higher gear and Europe crawled out of recession. Overall, OECD demand was stronger than expected last year, while non-OECD demand was weaker. The forecast for global oil demand growth rises to 1.3 MMbpd for 2015. Higher economic growth forecasts for large oil-consuming countries such as the US, China and Japan contribute most to this increased demand forecast, while macroeconomic growth remains the main downside risk.

OPEC and Non-OPEC Outlook

The impressive growth in the supply of oil outside OPEC is expected to continue, the lion’s share generated by unconventionals in the US and Canada. Russia has proved a positive surprise recently, and Brazil, China and Kazakhstan will also contribute to non-OPEC production growth next year. Elsewhere, Mexico plans to reform the country’s oil industry although this may prove difficult. South Sudan’s production has risen sharply, but political unrest suggests additional disruptions. Meanwhile, total North Sea oil production is set to fall in 2014–2015, while on the Norwegian Continental Shelf it is expected to have bottomed out in 2013 and will slowly edge up.

The biggest challenge facing oil companies will be control over escalating costs. With flattening oil prices, this will squeeze earnings margins, so new projects may be put on hold, increasing the risk of a tighter market when the global economy picks up momentum.

OPEC’s production capacity is expected to increase. Political unrest in key countries will continue to influence the investment climate, security of supply and production, and the risk of additional supply side disruptions remains high.

Despite the temporary deal over Iran’s nuclear programme, the chances of a lasting solution are unlikely, so major changes in Iranian oil exports are not expected. Iraq has the potential to increase production significantly, but growing political unrest, a lack of oil legislation and disagreement about revenues from Kurdistani oil may curb the ambitious plans. If, contrary to expectations, Iran and Iraq increase oil production strongly, there may be a downside risk for price forecasts, but Saudi Arabia will probably cut production to stabilise the market. There is also a downside risk for oil production in Nigeria and Libya due to mounting political unrest.

The need for OPEC’s production will be reduced by 2015, leading to a more flexible supply/demand balance and lower pressure on prices.However, with political unrest in key countries, there is a significant risk that we will see supply side disruptions cutting sharply into OPEC’s buffer.


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