Oil prices are expected to remain lower even once the coronavirus pandemic is over and the economy recovers.
Before a perfect storm hit the industry in 2020, medium-term price expectations had been firmly anchored around US$65-70 a barrel, based on the average annual price of Brent crude.
While prices cycled higher and lower in the short term, there was a strong and resilient consensus they would return to this level over a five-year time horizon.
But the extraordinary shocks to production and consumption last year have shaken this confidence and caused most observers to cut their medium-term expectations by around US$5 a barrel to US$60-65.
Brent is expected to average US$55-60 a barrel this year, down by US$10 from a previous forecast of US$65-70, as the industry gradually pulls out of last year’s slump.
By 2024, Brent prices are expected to average US$60-65 a barrel, but that is still down by US$5 from a forecast of US$65-70 previously.
Expected prices had been drifting lower since 2018 but the pandemic and volume war between Saudi Arabia and Russia have accelerated the downward trend.
The results are based on responses from more than 950 energy market professionals, part of an annual survey conducted by Reuters, now in its sixth year.
Among survey respondents, 27 per cent are directly involved in oil and gas production (exploration, drilling, production, refining, distribution, marketing and oil field services).
Most of the rest work in banking and finance (18 per cent), research (10 per cent), professional services (8 per cent), physical commodity trading (6 per cent), hedge funds (6 per cent) and other energy businesses (5 per cent).
In this year’s survey, respondents’ price expectations are tightly clustered between US$55 and US$60 for 2021, rising to US$55-70 by 2025.
Uncertainty, as measured by the dispersion of responses, increases as the forecasting horizon moves further into the future, which is what would be expected.
But the amount of uncertainty at each time horizon was the same in this year’s survey as in previous surveys despite the unprecedented shock.
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