Oil Price Scenarios for 2015 and 2016 – The Automatic Earth.
A couple of weeks ago I had a post titled The 2014 Oil Price Crash Explained that was cross posted to over 20 other blogs including The Automatic Earth and Zero Hedge. In this post I use the empirical supply and demand dynamic described in that earlier post (Figure 1) to try and constrain the oil price a year from now and in 2016. The outcome is heavily dependent upon assumptions made about supply and demand and the behaviour of OPEC and the banking sector. Three different scenarios are presented with December 2015 prices ranging from $45 to $100 / bbl. Those hoping for a silver bullet forecast will be disappointed. Individuals must judge the scenarios on merit and decide for themselves which outcome, if any, is most likely.
Figure 1 The blue supply line is constrained by monthly production – price data from 1994 to 2008 and shows how supply became inelastic to demand post-2004. As demand continued to rise, prices rose exponentially to $148 / bbl in July 2008 before crashing all the way down again. The blue supply line in this chart is shown as a faint blue dashed line in all other charts to provide a frame of reference.
But first a look at the recent response of oil price dynamics to fluctuations in supply and demand.
