Innovance
Numerous organizations have engaged in predicting the future trends of oil production, available supply, and their effects on prices globally, with conflicting views. We believe that this can only further increase the current uncertainty, and lead to increased speculation and volatility on prices, which can further reduce investments in energy and slow down global business activity in the midterm.
More specifically:
A new Citi report, which now downgrades the estimates on future price of crude, argues that the recent reduction in oil prices consists of “only the beginning” of upcoming events, as oil is very likely to drop even at $20 a barrel for a brief period of time.
The global situation seems to justify estimates of even lower oil prices than today, given that according to reports and analysts, US oil production is showing no signs of slowing, and Brazil and Russia are pumping oil at record levels. In the meantime, Saudi Arabia, Iraq, and Iran are competing for their current market shares, thus leading to reduced prices in Asia.
Simply put, the market currently suffers from oversupply and huge oil inventories, which led to the prices spiraling down, as OPEC refuses to reduce their supply. Meanwhile, oil analysts are reporting that they see no possible reduction of production at least until the 3rd quarter of 2015.
On the 10th of February 2015, WTI is negotiated at around $52 per barrel. It is a fact that the US “shale revolution” has irreversibly altered the capabilities of OPEC to effectively control prices and maximize profits for the economies involved.
On the other hand, in its monthly report for 2015, OPEC estimates that the sharp price reduction will drastically affect oil production in the US, and in other oil producing countries, “faster than expected”. The same report also estimates that the demand for oil produced in OPEC member-states will increase to around 29.21 million barrels per day (MMbd) this year, indicating an increase of 430.000 bd since the last OPEC prediction.
However, the report reviewed its previous assumptions concerning non-OPEC oil producers, reducing their total production volume by 420.000 bd, down to 850.000 bd, partly due to the slowdown of shale gas production in the US (a conflicting statement) and lower investments from energy companies worldwide.
In regards to their views on future production trends the report quotes that: “(The reduced supply from non-OPEC countries) is due to announced spending cuts for the year 2015 from national oil players, mostly due to the reduction of active drillings in the US and in Canada.”
OPEC also reduced its prediction for the total oil supply available in the US by 170.000 bd in 2015, while Russian and non-OPEC Middle Eastern countries are expected to also face a production reduction during the year.