Officials with the Organization of the Petroleum Exporting Countries don’t believe oil prices will rise above $100 per barrel for the next 10 years, according to inside sources.
This report comes from The Wall Street Journal, which saw excerpts of OPEC’s strategy report and interviewed others that had seen the full report.
“The report predicted that oil prices will be about $76 a barrel in 2025 in OPEC’s most optimistic scenario,” The Journal quoted its sources as saying. This is “a reflection of the cartel’s worries that American competitors will be able to cope with low prices and keep pumping out supplies. [OPEC] also contemplated situations where crude oil costs below $40 a barrel in 2025, the people said.”
According to the U.S. Energy Information Administration (EIA), last year oil rose above $100 for almost half of the year, peaking at $103.59 a barrel in July before steadily declining. To date in 2015, monthly prices have stayed below $61.
Crude oil is currently priced at $59.23 a barrel.
Looking back over the past 10 years (from March 2005 to March 2015), the mean price of crude oil was $81.30, with prices reaching above $100 a barrel a fifth of the time. During the same period prices peaked in June 2008 at $133.88.
OPEC publicly denies that oil prices could fall that low and even speculated two months ago that oil could rise as high $200.
“If you don’t invest in oil and gas, you will see more than $200 [a barrel],” warned OPEC’s Secretary-General Abdulla al-Badri last February. He encouraged the oil industry to finance more in future growth to keep prices low.
In response to The Journal‘s article, the OPEC Secretariat released a statement saying there is “no basis whatsoever” that crude oil will fall below $76, or even $100.
“Much of the referenced material is not mentioned by any document that the OPEC Secretariat is currently developing in collaboration with its member countries,” said the OPEC statement.
Factors contributing to the recent low prices include a stronger U.S. dollar and an increase in oil from American sources, including the recent boom in hydraulic fracking. But for most OPEC countries, oil must be priced above $100 a barrel in order to cover production costs.
One solution to boost oil prices, according to the strategy report, is for OPEC to reinstate production quotas. The cartel is considering this alternative if its global market share falls below 32 percent.
“The report is expected to recommend that OPEC return to a production-quota system that it largely abandoned in 2011 after fights over how much each country would get to produce, according to people familiar with the document,” reported The Journal. “OPEC members have been reluctant to agree to limits because it restricts their ability to attract new business and most ignored their quota.”
Switching to cleaner oil production may also be necessary to appease the United Nations, said the report.
“OPEC members don’t want to suffer from environment regulations that hurt their revenue,” said one of The Wall Street Journal‘s sources. The strategy report advised “OPEC members must aggressively participate in these discussions to limit their negative effects and should have a common stance.”
Yesterday, the EIA issued its short-term energy outlook for crude oil, saying that average 2015 WTI prices are expected to be $55 a barrel. It predicts prices will rise to $65 in 2016.
“Several factors put upward pressure on crude oil prices in April,” the EIA said regarding 2015’s increasing prices.
“These factors included indications that global oil demand growth is accelerating, evidence that U.S. tight oil production could decline in the coming months, and the growing risk of unplanned supply outages in the Middle East and North Africa.”
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