The Strategist

OPEC Predicted Oil Prices Bouncing Back to $ 100 in a Quarter-Century


12/23/2015 - 15:44



OPEC predicts that by 2030, the nominal price of a barrel of OPEC oil will be close to $ 123, and exceed $ 160 by 2040. However, in-equivalent to dollars’ value in 2014, cost of a barrel will be about $ 95 in 2040.



Day Donaldson via flickr
Day Donaldson via flickr
In the medium term, cost of a barrel of oil from the so-called OPEC basket will increase by about $ 5 per year, so that by its nominal price will have risen to $ 80 by 2020, according to OPEC’s report titled World Oil Outlook (WOO) published today. Re-calculated in dollar’s value as per 2014, approximate price will be $ 70.7 per barrel (inflation will significantly reduce value of the US dollar during next five years).

According to the cartel’s calculations, a gradual improvement in the world economy’s "well-being" will lead to the fact that total demand for oil will exceed 97 million barrels a day by 2020. By 2040, it will reach 110 million barrels a day. Combined capacity of refineries should grow by about 20 million barrels a day by 2040.

At the same time, OPEC experts believe that countries not included in the cartel will not manage to significantly increase oil production, since development programs require huge investments. According to OPEC’s estimations, investment in the global oil industry, necessary for the next quarter-century, are about $ 10 trillion in the 2014 price. As the most accessible deposits of oil production will be exhausting, oil extraction in non-OPEC countries will begin to decline. By 2040, it will fall back below 60 million barrels a day. OPEC believe that this will balance the world oil market, eliminating excess of supply over demand.

By the same 2040, daily production OPEC member countries will grow by about 10 million barrels (1 million barrels more than the previous WOO report forecasted), which will lead to increased demand for OPEC oil. Its price will rise correspondingly. According to the report, the nominal value of a barrel of OPEC oil will be close to $ 123 in 2030, and by 2040 will exceed $ 160. Equated with dollar’s value in 2014, price per barrel will be about $ 95.

In July 2015, the founder of the consulting firm PIRA Energy Group Gary Ross said that price of a barrel could rise again to $ 100 by 2020. Mr. Ross is one of the sophisticated oil market experts who predicted collapse of oil prices in 2014. Speaking about what affects oil prices, Ross pointed out that the oil market is not so much overstocked as it seems, and noted that excess supply is low, as Saudi Arabia produces maximum possible amount of oil, not boring new wells.

Earlier, the grandson of the first King of Saudi Arabia and one of the most successful investors, the Arab prince Al-Waleed bin Talal expressed confidence that the price per barrel will never rise to $ 100. "I am confident that we will never see a price of $ 100. As I said a year ago, the price of oil over $ 100 a barrel is artificial,"- said the prince.

source: wsj.com