Long-term expectations about oil prices remain firmly anchored around US$65 to US$70 a barrel, according to the latest annual survey of energy professionals conducted by Reuters.
Plentiful supplies from U.S. shale plays and other sources outside the Organization of Petroleum Exporting Countries are expected to keep prices close to their recent range for the indefinite future.
Fears about peaking oil supplies, common 10 years ago, have disappeared; now, there are some indications that expectations about peaking oil demand are taking hold.
Brent is forecast to average US$65 a barrel in each of the next five years based on the median, or US$67 this year rising slightly to US$69 by 2024 based on the mean.
Most forecasters expect average prices to remain between US$60 and US$75 a barrel in each of the next five years, with only a very small number expecting them to dip below US$50 or rise above US$90.
The results are based on a questionnaire sent to more than 9,000 energy market professionals, with responses received from 950 between Jan. 8 and Jan. 11.
Price forecasts are very close to last year’s survey and previous years, although in most cases the average has fallen by US$1 or US$2.
In earlier surveys, there was some slight upward drift in price expectations for the out years, but there is no sign of that this year.
Most respondents seem convinced there will be enough oil to meet conceivable demand at around US$65 a barrel in the medium term.
Fewer than 5 per cent thought oil prices would average US$100 or more in 2024, prices that would signal pressure on production, which were once common between 2011 and 2014.
In contrast, nearly 16 per cent of respondents thought prices would average less than US$50, a possible a sign of softening consumption and market saturation as part of the transition away from an oil-based transportation system.
OIL INDUSTRY INSIDERS
Among survey respondents, 26 per cent are involved directly in oil and gas production (exploration, drilling, production, refining, marketing and field services).
Most of the rest are involved in banking and finance (19 per cent), research (11 per cent), professional services (7 per cent), hedge funds (7 per cent), other energy industries (5 per cent) and physical commodity trading (5 per cent).
The results from respondents involved directly in the oil and gas industry were very similar to those in other sectors.
Oil and gas insiders and those outside the industry have more or less the same views about prices in 2020.
Insiders are marginally more bullish than outsiders for later years, perhaps predicting higher prices will be needed to ensure production growth, but the difference is just US$2 a barrel in 2022, rising to less than US$4 in 2024.
EXPECTATIONS ANCHOR
Last year’s survey predicted Brent prices would average US$63 a barrel in 2019, which proved remarkably close to the actual outturn of US$64, based on daily closing prices.
In fact, the survey has been highly accurate since its inception in 2016, with the possible exception of 2018, when prices climbed a bit more than expected.
The main reason for the miss was probably the unexpected severity of U.S. sanctions on Iran, coupled with Saudi Arabia’s restrictive output policy and an acceleration in global growth.
In this year’s survey, as with previous versions, respondents exhibit more certainty about prices this year and next compared with the out-years, which is natural given that uncertainty tends to increase over longer time horizons.
Responses for 2020-21 are tightly clustered, while expectations for 2023-24 exhibit more variation. Even so, very few respondents expect average prices to fall below US$50 or rise above US$90 at any point in the next five years.
Response clustering has been increasing in recent surveys, suggesting the anchoring of long-term expectations around the US$65-to$70-a-barrel level is becoming stronger.
The longer prices trade around the US$65-to-US$70 level, with production and consumption roughly in balance, the more expectations are becoming cemented around this level.
Over the past 27 months, since the start of November, 2017, Brent prices have closed between US$60 and US$75 a barrel on 74 per cent of all trading days, with just 10 per cent of closes below this level and 16 per cent above it.
Over all, most respondents expect the oil market to remain comfortably supplied in the foreseeable future, with prices oscillating around the current level and relatively moderate volatility.