This article originally appeared on watchdog.org.¬†
HOUSTON ‚ÄĒ Oil prices dropped more than 50 percent¬†in eight months, and while a few¬†energy¬†experts expect a quick rebound, there‚Äôs a growing consensus we won‚Äôt see triple-digit prices any time soon.
‚ÄúIn the oil market, the rule is never to say never,‚ÄĚ¬†Antoine Hallf, chief oil analyst for the International Energy Agency,¬†told Watchdog.org. ‚ÄúBut in the absence of negative disruptions, the fundamentals suggest that $100 oil is over for some time.‚ÄĚ
‚ÄúI think $60 (a barrel) to $80 is probably a definition of the new normal,‚ÄĚ¬†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.
‚ÄúI think very few people are talking about triple-digits,‚ÄĚ Hallf said.
That‚Äôs 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‚Äôs particularly hard on countries whose economies are dependent¬†on high oil prices.
For a number of nations with combustible domestic issues or authoritarian¬†regimes ‚ÄĒ¬†like Libya, Iran, Nigeria,¬†Venezuela and Russia ‚ÄĒ¬†the so-called ‚Äúbreak-even price‚ÄĚ 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 ‚ÄĒ¬†the benchmark crude oil price¬†used in¬†the U.S.¬†‚ÄĒ 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.
‚ÄúI tell people in the oil business you shouldn‚Äôt be hoping for $100 a barrel,‚ÄĚ said¬†Peter Tertzakian, chief energy economist and managing director at ARC Financial Corp.¬†in Canada. ‚ÄúI think $80-$85 is the right number.‚ÄĚ
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.
‚ÄúAt $50 a barrel, producers are still making money,‚ÄĚ Leonard said, adding that Bentek is expecting West Texas Intermediate prices to remain below $100 a barrel for the next 10 years.
‚ÄúIt‚Äôs going to take a while before we see producers not having any more inventory, not having any more room to drill,‚ÄĚ Leonard said.
‚ÄúIt would take $30 (a barrel) oil for a shutdown in oil production,‚ÄĚ Petrie said.
Prices below $100 a barrel may¬†turn¬†an already volatile geopolitical landscape¬†more volatile.
‚ÄúIf it‚Äôs true that there‚Äôs an overhang, that it will take a year to burn off, then something‚Äôs got to give,‚ÄĚ 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 ‚Äúslips 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.‚ÄĚ But OPEC‚Äôs leaders have not indicated they‚Äôd agree to an emergency session.
Analysts at¬†Vienna, Austria-based¬†JBC Energy, are taking a contrarian stance.
Julius Walker, JBC‚Äôs senior consultant, predicts¬†the price could be back¬†to $100 a barrel by the start of 2018, in large part because demand will increase.
‚ÄúU.S. shale production, we think, will continue to grow, but it will grow at a slower pace,‚ÄĚ Walker said. ‚ÄúAlso, what we‚Äôre 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‚Äôs a real risk of prices spiking back up to $100 and beyond.‚ÄĚ
But all the analysts qualified their predictions. After all, almost no experts predicted the price collapse. Commodity¬†pricing always has been an unpredictable science ‚ÄĒ¬†even more so in a dicey geopolitical climate.
‚ÄúThe market has a capacity to surprise participants,‚ÄĚ Halff said.
‚ÄúThe point of all such things is that it creates uncertainty,‚ÄĚ Walker said. ‚ÄúAnd uncertainty alone affects oil prices and global markets.‚ÄĚ