Oil Price Forecast: USD400 by 2020?

There are two kinds of crude oil benchmarks. West Texas Intermediate (“WTI”) for the U.S. and Brent North Sea for global oil prices.

WTI is trading at $76.23 per barrel currently but Dr. Philip Verleger, an oil economist, has predicted USD400 per barrel by 2020. His basis is that a recent International Maritime Organisation (IMO) regulation could lead to a worldwide recession. Every ocean-going ship must use low sulphur fuels by 2020, according to IMO. The problem is that there isn’t adequate supply of low sulphur fuel. And as such prices will soar. Morgan Stanley’s oil forecast is USD90 per barrel by 2020 even with the IMO regulation.

So what is it, USD400 or USD90 by 2020? Predicting oil prices is like checking for the next hurricane or earthquake. And both have an impact on oil production depending on its location. But clearly there are reasons for supply-side impact:

(i)        U.S. production of shale oil – by 2019, will top 11.5 million barrels per day. The International Energy Administration predicts the U.S. will become the world’s largest oil producer by 2023;

(ii)       OPEC’s lower production of 32.5 million barrels per day will continue into 2020;

(iii)      Rise in dollar may offset drop in oil prices; and

(iv)       Global demand has slowed down more than anticipated – China has slowed its growth. Also, renewables electric vehicles and “war” on plastics will increasingly have an impact.

A price collapse could occur in response to a bearish U.S. stock market, significant output increase by Iraq or Russia or U.S. oil shale producers increase their production. So is it USD400 or USD90 per barrel? More likely, it will remain in the historical range levels of USD70-USD100 per barrel up to 2020 and OPEC is counting on that!

References:

1. This New Oil Price Prediction Calls for $400 a Barrel by 2020, Money Morning News Team, Money Morning, August 200, 2018

2. Oil Price Forecast 2018-2050, Kimberly Amadeo, September 2018

3. The Next Oil Price Collapse, Michael Lynch (www.forbes.com)

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