Every year I have a bet with a good friend on where the Brent oil price will be in December the following year. Last year I estimated $56.50, my friend $99, so this year I am a clear winner, even though I’m out by about 49%. Brent is trading at $38 as I write. I can extract little satisfaction from this since I got “close” for the wrong reasons.
Let’s cut to the quick. My forecast for Brent at around this time next year in my BAU (business as usual) scenario is $37. This is grim reading for all those involved in and around the oil industry. Worse still, I think there is high probability that we see sub-$20 oil before the first quarter is out. But this is great news for consumers. The reason is gross over-supply sustained throughout 2016, helped by Iran coming back to full market with an additional 800,000 bpd.
In addition to BAU I present two other scenarios. Capitulation where OPEC throws in the towel and cuts 5 million bpd that sends the price back to $100. And Event where terrorist activities in Saudi Arabia (or elsewhere) sends the price towards $100. The world has 3 billion barrels in storage and this may hang over the market for years to come.
This article first appeared on the Energy Matters blog. Third parties are welcome to cross post but must leave this sentence and link in place.
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