BrazilExpert forecasts agree on slight rise in global oil prices for year ahead
Global oil prices are predicted to rise moderately in 2018 according to a cross-section of industry CEOs, country projections, and institutional market forecasts compiled by global consulting firm Roland Berger, with most sources appearing to be in relative agreement.
The global oil price has seen ups and downs in the past decade, falling from a peak in 2008 of almost $140 a barrel to a little over $30 a barrel in 2016. The ups and downs have created a rollercoaster ride for producers, with various countries, many dependent on oil exports, being hit hard by the lower oil prices that have reigned since 2015.
For 2018, the market should see a minor improvement according to oil industry bodies and the historically most-accurate country forecasts, with the 2017 average barrel price of $51 ticking up to $54. While expectations fell a fraction short in 2017, the forecasts were marked by considerable divergence and the average distorted by an overly-bullish projection from Saudi Arabia – historically one of the most accurate country forecasters.
In its latest annual oil industry forecast report, however, the sources of the Roland Berger review are in reasonable agreement for the year ahead, ranging from Iraq’s low of $47 to Saudi Arabia’s high of $59 for an average of $55. Conducted since 2007, the report considers the average projections of the top three-most accurate country predictors since 1999 – Saudi Arabia, Iraq and Nigeria – measured against a grouping of the foremost energy institutions in the NYMEX, EIA, and OECD.
While prior to 2009, the top-3 country grouping proved to be a more reliable source for oil price predictions, averaging a 12% error rate from 2002-2008 against the 19% error rate from the institutional grouping over the same period, the trend has since reversed – with the institutional rate at 12% from 2009 onwards and the country one blowing out to 27%. As demonstrated by the report, the swing in prediction accuracy from 2009 has coincided with the rise of the US as a major (shale) oil producer and exporter, with the role of oil-producing countries in controlling supply having diminished.
Yet, while last year saw the country forecasts diverge wildly, by as much as ~$42 from Iraq against Saudi Arabia’s ~$72, for a combined top-3 country accuracy error rate of 20% as compared to the institutional groupings combined error rate of 8% (inflated by the OECD’s 19% undervaluation), the year ahead has both groupings falling at an average of $54.
There is also little divergence within the groups, with the NYMEX ($55) and OECD ($56) emerging relatively close to that of the EIA at $51, and the prediction from Nigeria, which along with the EIA and Iran was last year’s most accurate forecaster at just the ~1% out, falling right in the middle of the range at $55.
While the greatest disparity in predictions is between that of Iraq ($47) and Saudi Arabia ($59), the report notes that the Saudi Kingdom’s recent over-estimations are an intentional budgetary management effort to keep the public deficit as small as possible, with the petroleum sector accounting for 87% of the country’s public budget.
The projected moderate increase in oil prices for the coming year is also backed by the conservative upward price trend predicted by a number of CEO’s from some the world’s largest oil companies, including Shell, ConocoPhillips, Petrobras and BP – with the rise in barrel prices in line with the latter’s expectation of a continued rise in demand (to peak between 2025-2035), which last year saw the industry’s first period of undersupply since 2013.
Altogether, the recent production cuts by OPEC which have propped up oil prices have been balanced out by the growth in US production, effectively capping further rises. If peak demand predictions are accurate, the volume of US reserves may see this trend continue over the longer-term.
“Looking at the currently proven reserves, U.S. corporations can maintain pressure on the price as a swing supplier well into the next decade – the time when some expect oil demand to peak,” Roland Berger senior partner Arnoud van der Slot said, “Hence, it is likely that prices will remain at current levels in the foreseeable future."
Earlier this year, a report from The Boston Consulting Group argued that the petrochemical companies of the GCC would need to consider consolidation to avoid stagnation in the face of persistent low oil prices and other challenges confronting the sector.
