Say Goodbye To Cheap Oil… For Now
Oil prices will be much higher over the next few years than previously thought, according to a new report from Barclays.
The investment bank significantly raised its pricing forecast for 2020 and 2025 in its annual medium-term oil report. Barclays expects Brent to average $75 per barrel in 2020, up from a previous estimate of $55, while prices may average $80 in 2025, up from $70 previously.
The bank noted that the market is dramatically different than it was at this point last year when it issued its previous medium-term report. U.S. shale drillers are maintaining capital discipline, which could lead to lower than expected production levels. OPEC and Russia have demonstrated resolve and laid the groundwork for long-term market management, which could keep supply off the market for years to come.
Also, the U.S. has deployed an aggressive sanctions campaign against Iran and even Venezuela, measures that should translate into more than a million barrels of per day of supply losses. And finally, “several key OPEC producers are at risk of being failed states,” Barclays concluded.
But that does not mean that the world is set to suffer from supply shortages. “Prices could reach $80 and higher in the short term, but these price levels have reawakened the industry’s animal spirits,” Barclays said. “In our view we are not on the cusp of another boom cycle in oil prices because of an impending ‘supply gap.’”
Any near-term price spike will be driven by sentiment and temporary rallies, rather than a fundamental gap in supply. “Though we expect that a price range above $80 will become the new norm next decade, our market balances do not justify those price levels in the next one to two years,” Barclays argued. “There are many other possible reasons to be bullish during that time frame, but the ‘supply gap’ is not one of them.”
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