Oil Price Predictions

The EIA expects oil prices to reach well over USD 100 per barrel by 2035, USD 125 per barrel for a reference scenario – non-OECD liquids consumption is around 25 million barrels per day higher in 2035 than in 2009 and OECD consumption grows by less than 3 million barrels per day. Oil prices are expected to range from USD 50 per barrel for a low oil price scenario to USD 125 per barrel for a high oil price scenario. A problem with the low price scenario is that it assumes the willingness of OPEC members to increase oil production and reduce their market share. This seems unlikely considering at the last OPEC meeting oil production guidance remained the same despite rising oil prices due to the influence of key major oil producing members of the group, most notably Saudi Arabia.
The higher price scenario assumes constraint in supplies of conventional oil and increased production of higher cost unconventional oil. While neither the low or high price scenario may be a reflection of reality, the higher scenario seems more likely than the lower price scenario.
Even though oil prices have risen and are projected to continue to rise, oil prices are extremely volatile making it difficult for players involved in the supply chain. As new capacity addition projects have long-lead times and the high capital costs. Therefore, it is challenging to assess the viability of proposed projects in economic terms. Furthermore, the difficulty in projecting demand for oil creates another source of high uncertainty.
Refinery margins are also variable. This is the difference between the price at which oil companies purchase crude from oil explorers and the price at which they sell the end product after processing – which are positive if the sales prices is higher than the purchase price and negative if the sales price is lower than the purchase price. In the case of refining in Singapore using hydrocracking this figure hit negative figures, which may reduce the incentive for investment in upstream production capacity. The same applies to refining in West Texas using sour coking which has declined from highs in 2005, 2006 and 2007.