Will oil ever hit $100 again?


by Andreas Exarheas
Oil will hit $100 per barrel again, according to RoseAnne Franco, head of oil and gas at global risk consultancy Verisk Maplecroft.

“It’s a question of when and will it stay there … the level of geopolitical uncertainty we confront today is particularly volatile and precisely the type of conditions that could lead to an oil price shock,” Franco told Rigzone.

“That said, the uncertainty appears to cut both ways as global economic growth, which supports higher oil demand, is vulnerable to heightened geopolitical risk, which erodes it,” Franco added.

Fundamentals don’t appear to support such higher price levels this year, according to Franco. The Verisk Maplecroft representative stated however that “beyond 2020, an oil supply crunch due to the retrenchment in spending in the oil patch coupled with a perfect storm on the geopolitical end could easily trigger another price shock.”

Offering his view, Devin Geoghegan, Genscape’s global director of petroleum intelligence, told Rigzone that “unless electric cars become the unicorn of demand growth deceleration, $100 oil seems highly likely at some point during the next 10 years.” The Genscape director added however that there are “very real headwinds” to reaching that figure again.

“First, stagnant or declining demand could cause an abrupt shift lower in multi-year supply need expectations,” Geoghegan said.

“Second, technology could conceivably continue pushing break-evens lower through either improving costs in currently uneconomic areas or by opening yet to be developed shale oil outside the U.S. The most likely near-term impact would be the continued lowering of offshore development costs,” Geoghegan added.

Outlining further headwinds, Geoghegan said new plays can still be discovered and even existing plays that have had a decline in activity could become resurgent due to higher prices. The Genscape representative also claimed that an “outside risk” would be if certain countries were able to reverse course and regain historical production highs.
Possible, But Probably Not Sustainable

PwC’s Aberdeen Office Senior Partner, Kevin Reynard, believes it is “feasible” that the oil price will surpass the $100 mark, but thinks very high oil prices for a sustained period are “hard to envisage.”

“It is possible that we could see oil prices spike if demand rapidly outpaces supply, which has not been the case in recent years. That said, there remains concerns that there could be a price spike in the medium term should a supply crunch emerge against a backdrop of strong demand,” Reynard told Rigzone.

“Whether or not this sees the price surpass the $100 mark again depends on a number of factors but given the expected lifecycle of hydrocarbons and long-term inflation it is feasible, though very high oil prices in relative terms for a sustained period as we witnessed pre-2014 are hard to envisage,” he added.

Giving his opinion, EY’s Global Oil & Gas Senior Analyst, Paul Bogenrieder, outlined that $100 oil is “certainly possible” but “probably not” sustainable.

“If prices were to move near to or above $100 for any length of time, the market would respond and bring a lot of oil forward. That would be enough to bring prices down below that level,” Bogenrieder told Rigzone.
Not the Preferred Option

Oil prices over $100 per barrel are not the preferred option for either producers or consumers, according to Interfax Energy Senior Energy Analyst Abhishek Kumar, who believes such prices are “unlikely” to happen as long as the OPEC+ group continues to manage the market.

“Excessively high prices will lead to demand destruction whereas prices too low are not conducive for upstream investment,” Kumar told Rigzone.

“It is becoming increasingly clear that a price range of $50 to $80 per barrel will work well for the OPEC+ and their clients. Consequently, the chance of prices moving beyond this range for a prolonged period are low,” he added.

“Nevertheless, unforeseen geopolitical and economic events such as in Iran and Venezuela will have the potential to render price shocks, which could move prices beyond the range,” Kumar continued.

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