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Optimists and Pessimists

Experts are divided when predicting the oil market
This article appeared in Vol. 13, No. 5 - 2016

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As Jarand Rystad of Rystad Energy recently pointed out, several important questions face the industry: when will the oil market rebalance? What will this mean for the oil price? Will shale oil alone be able to close the potential supply gap in 2017 and 2018? What other sources of short and medium supply exist? And at what cost? 

Rystad believes that the market will rebalance soon and oil prices will improve in the last quarter of this year so that by 2018 large expensive offshore projects such as the development of recent discoveries in the Barents Sea will be in a competitive position. 

Glass half empty or half full? Uncertainty in predicting the future can result in apparently conflicting opinions. However, another Norwegian consultancy, Nordea, lowered its Q3 oil price forecast in August, citing the pressure prices have been under from long term high petrol stocks, a more downbeat outlook for the world economy and the return of locked-in barrels after the wildfires in Canada. In September it further cut the oil price forecast for 2016 and 2017, believing that “the global oil balance is gradually tightening as OPEC’s low-price regime is finally taking its toll on high-cost oil suppliers. Factors such as record-high commercial inventories, the weaker outlook for global oil demand growth and fierce competition among major oil producers to gain market share are expected to weigh on oil prices in the coming months.” 

The US EIA’s Annual Energy Outlook, published mid-September, also suggested a slower recovery, with an average price for Brent crude in 2017 of about $48 per barrel, and remaining below $80 until 2020. 

Libyan and Nigerian Barrels 

American analyst Bloomberg also sounds a cautious note, pointing out that the global oil glut is likely to be added to in the next few weeks as two previously major OPEC oil contributors add hundreds of thousands more barrels to the market. 

Torn by civil strife, Libya recently announced that it would very soon begin exporting from three key ports and plans to start shipping 600,000 bopd in October, hoping to increase to 950,000 bopd by the end of the year – a big jump up from its present 250,000 bopd. Reopening these ports, which had been closed for 18 months, would be a huge step for the North African country, although the ongoing political turmoil throws the plan into some doubt. 

In Nigeria, also beset by civil unrest, ExxonMobil are set to reopen the Qua Iboe terminal, closed for several months after a suspected terrorist attack on a pipeline shut down production. In addition, force majeure on Shell’s Bonny exports was lifted in September, and these two developments together will allow over 500,000 bopd of light sweet crude back into the market. 

What About Shale? 

The biggest unknown is probably the growth and impact of shale developments. Consultants Wood Mackenzie say that companies with US shale assets are likely to be at a competitive advantage for several more years. Rystad Energy, however, believes that while shale will have the largest growth in investment over the next few years and will continue to deliver large volumes in 2017, marginal costs for shale production will soon start to increase rapidly. By 2018 Rystad believes this will have had an effect on production, the surplus and the price of oil

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