This article originally appeared on watchdog.org.
HOUSTON — Oil prices dropped more than 50 percent in eight months, and while a few energy experts expect a quick rebound, there’s a growing consensus we won’t see triple-digit prices any time soon.
“In the oil market, the rule is never to say never,” Antoine Hallf, chief oil analyst for the International Energy Agency, told Watchdog.org. “But in the absence of negative disruptions, the fundamentals suggest that $100 oil is over for some time.”
“I think $60 (a barrel) to $80 is probably a definition of the new normal,” Tom Petrie, chairman of the oil investment firm Petrie Partners, who is based in Denver, said last Thursday while addressing the Platts North American Crude Oil Summit in Houston.
“I think very few people are talking about triple-digits,” Hallf said.
That’s good news for drivers who have seen prices at the pumps crater in recent months, which is estimated to save the average American motorist about $800 a year. Pump prices, however, are starting to creep back up a bit across the country.
Low prices are much more problematic for oil producers and states like North Dakota, Texas, Louisiana and New Mexico that rely on energy production to support state budgets.
And it’s particularly hard on countries whose economies are dependent on high oil prices.
For a number of nations with combustible domestic issues or authoritarian regimes — like Libya, Iran, Nigeria, Venezuela and Russia — the so-called “break-even price” for oil is at or well north of $100 a barrel:
Last June, oil was at $107 a barrel. Currently, oil is in the $50 a barrel range for West Texas Intermediate — the benchmark crude oil price used in the U.S. — and about $60 a barrel for Brent crude, the generally accepted international price.
A little more than two months ago, T. Boone Pickens predicted Brent crude would bounce back between $90 and $100 a barrel within 12 to 18 months, but other oil analysts are more bearish.
“I tell people in the oil business you shouldn’t be hoping for $100 a barrel,” said Peter Tertzakian, chief energy economist and managing director at ARC Financial Corp. in Canada. “I think $80-$85 is the right number.”
Some of the reasons why: Oil demand is getting weak while supplies are robust, and better technology is driving down production costs.
Nicole Leonard, an energy analyst for Bentek Energy, said she expects to see an oversupply up to 600,000 barrels a day for the next four years.
“At $50 a barrel, producers are still making money,” Leonard said, adding that Bentek is expecting West Texas Intermediate prices to remain below $100 a barrel for the next 10 years.
“It’s going to take a while before we see producers not having any more inventory, not having any more room to drill,” Leonard said.
“It would take $30 (a barrel) oil for a shutdown in oil production,” Petrie said.
Prices below $100 a barrel may turn an already volatile geopolitical landscape more volatile.
“If it’s true that there’s an overhang, that it will take a year to burn off, then something’s got to give,” Tertzakian said.
Unrest in Venezuela is bubbling over and government officials in Nigeria are feeling the pressure from low oil prices.
The Nigerian oil minister last week said if the price “slips any further it is highly likely that I will have to call an extraordinary meeting of (the Organization of the Petroleum Exporting Countries) in the next six weeks or so.” But OPEC’s leaders have not indicated they’d agree to an emergency session.
Analysts at Vienna, Austria-based JBC Energy, are taking a contrarian stance.
Julius Walker, JBC’s senior consultant, predicts the price could be back to $100 a barrel by the start of 2018, in large part because demand will increase.
“U.S. shale production, we think, will continue to grow, but it will grow at a slower pace,” Walker said. “Also, what we’re seeing around the world is stronger demand in places like China and India and a slowdown in production growth in higher cost areas. I think market balances will tighten substantially in 2016 and 2017. By 2018, we think there’s a real risk of prices spiking back up to $100 and beyond.”
But all the analysts qualified their predictions. After all, almost no experts predicted the price collapse. Commodity pricing always has been an unpredictable science — even more so in a dicey geopolitical climate.
“The market has a capacity to surprise participants,” Halff said.
“The point of all such things is that it creates uncertainty,” Walker said. “And uncertainty alone affects oil prices and global markets.”