From $35 per barrel to $130 per barrel—this is the range for oil prices in the next few years that we could see, according to a commodity trading group. And it will all depend on what peaks first: demand or investment in new production. “You could see spikes to even higher than $100 a barrel, even $130, and you could also see it go down to $35 a barrel for periods of time going forward,” William Reed II, chief executive of Castleton Commodities International, said at the FT Global Commodities Summit this week, as quoted by Reuters. “The question is what happens first. Peak demand or peak investment?”
This is a fascinating question that will likely remain open for quite some time; it seems as if forecasts are even more unreliable than usual in the post-pandemic world. For instance, last year, energy authorities and the industry itself predicted oil demand growth was over thanks to the pandemic that encouraged a doubling down on an energy shift away from fossil fuels. Now, these same forecasters, including the International Energy Agency and BP (0.78%), are talking about growing oil demand.
One thing that can hardly be disputed is that lower spending on exploration would inevitably lead to lower production. This is what we have seen: the pandemic forced virtually everyone in the oil industry to slash their spending plans. This is what normally happens during the trough phase of an industry cycle.
What doesn’t normally happen in a usual cycle is long-term planning for smaller output. Yet this is the response of Big Oil to the push to go green. Most supermajors are planning changes that would effectively reduce their production of oil and gas. In Shell’s (1.31%) case, it has been literally ordered by a Dutch court to shrink its production of oil and gas.
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