Oil prices are likely to rise sharply from 2015, surpassing $150 a barrel in 2019 and 2020, Bernstein Research said, in a report at odds with a growing oil industry consensus that says rising supplies of unconventional oil will moderate prices.
The 180-page report from Bernstein estimates Brent will rise from an average $113 in 2015 to $158 in 2020, with US crude priced at a $5 discount, almost doubling the price of oil since Brent averaged $80 a barrel in 2010. The forecast compares with prices on the forward futures curve for Brent that are at a substantial discount to the current price of $115 a barrel. Brent for 2015 traded at about $99 a barrel, falling gradually to $91 a barrel in December 2019.
“A new thesis in energy markets is that unconventional sources of oil supply will soon outweight global demand growth, driving oil prices lower – we disagree,” the report says.
“Global Oil Prices: At ‘Base Camp’ Before the Final Ascent” argues that while US shale oil and Canadian oil sands have reinvigorated the North American oil industry, new supplies are too small to meet emerging market demand growth. By 2015, shale oil is forecast to constitute just 3.2 pct of global supply, up from 1.5 pct now.
“Emerging market demand is still robust, rising with higher wealth and mobility; in developed markets the role of fuel economy in demand destruction is overstated; conventional non-Opec supply is increasingly mature; Opec capacity growth will likely lag its required rate.”
The report forecast oil markets will be balanced for the next two years, kept in check by price elasticity as higher prices erode demand and lower prices shut in supply. But in the second half of the decade it says demand will rise, non-Opec supply will fall and Opec spare capacity will drop.
The cost of production will support prices. Bernstein estimated the marginal cost of supply – the cost of production for the most expensive new fields – rose to $92 a barrel on average last year. Output from marginal wells is scale back when prices fall below that level, including supply from the smallest US shale oil wells.
It said that Canada’s oil sands producers need $100 a barrel to achieve an adequate return on capital. With oil demand forecast rising from 90 mbpd now to 100 mbpd 2020, Opec would need to lift capacity by 9 mbpd from about 35 mbpd now to balance world markets.
“Opec producers will prefer to run deficits in world oil supply rather than in their own domestic budgets,” the report said. In addition, the average budget breakeven across Opec nations is likely to rise from $94 a barrel to $109 by 2017, Bernstein estimated.
