Kemp: Oil Prices Expected to Recover to $70 by 2020
Oil prices are expected to rise gradually over the next five years but will remain well below the pre-crash level, according to a survey of professionals who follow the oil industry.
Brent prices are expected to climb from an average of $40 per barrel in 2016 to between $65 and $70 per barrel by the end of the decade.
The price expectations are based on an email survey sent to more than 2,500 energy professionals working in oil and gas, banking, hedge funds, research, professional services, trading and specialist media earlier this month.
More than 800 responded. The full tabulation of responses as well as summary statistics are available for download (http://tmsnrt.rs/1QxjBS4).
The results are more bullish than the futures strip, where Brent is currently trading around $50 per barrel on average in 2020.
In the survey, there is a high degree of consensus about prices for the rest of 2016. Most forecasts for 2016 are tightly clustered between $35 and $45 per barrel. Nearly all lie between $30 and $50.
Brent prices have averaged just $33 per barrel so far in 2016, so most respondents expect prices to be slightly firmer in the remainder of the year.
But in the latter years covered by the survey there is far less consensus about what will happen, reflecting uncertainty about how far and how fast prices might recover from the crash.
The central forecast rises progressively by $5 to $10 per year between 2017 and 2020, but the range of expectations also becomes successively more dispersed.
Most respondents expect prices to rise to around $65 to $70 per barrel by 2020. But as many as a quarter think prices will remain stuck below $55, while another 25 percent think they will have risen to more than $80 by then.
One way to measure the increase in uncertainty is to look at the standard deviation of survey responses over longer time horizons.
The standard deviation of responses grows from less than $8 for 2016 to $20 by the end of the decade, suggesting uncertainty about prices at the end of the decade is almost twice as great as in the near term.
For 2016, 90 percent of forecasts lie in a $20 range from $30 to $50 per barrel, but by the end of the decade the comparable range is $60 wide from $40 to $100 per barrel.
Despite market chatter about a looming supply crunch as a result of cuts in investment spending, only 7 percent of respondents expect Brent prices to climb back to $100 or more by the end of the decade.
(By John Kemp)
