Note: All prices are in US$.
Over the past 12 months, global oil prices have ranged from under $20 a barrel to its current high of around $65. In early 2021, most economists predicted a stable price for the duration of 2021 with some modest upside – ranging from $45 to $55 at best. Since oil prices passed most predictions in the first few weeks of 2021, where does the price go from here? Does anyone know?
Economists across North America have been revising their estimates higher since the fall of 2020, as demand predictions show a return to normal consumption just around the corner. These revisions have been justified by the COVID vaccination roll out across the globe and signs that OPEC+ is not likely to increase production fast enough to match the rising demand.
As most are well aware, predicting oil prices is not for the faint of heart. In normal times, there are an array of uncertainties to be considered. The current environment has introduced even more uncertainties and risk factors layered on top.
Some of the “new” unknowns creating uncertainty for oil prices include:
Has a material portion of oil demand evaporated forever?
When will oil demand return to normal – 2021? 2024?
What is the US dollar going to do?
When developing economies like India and China see economic growth pick up, will oil prices be driven up as well?
What will US oil production be next year? When will President Biden’s “structural adjustments” take effect? How will US based shale producers react?
And the biggest uncertainty that has been a factor since the 1960/70s:
What will OPEC / Saudi Arabia do? This point is further complicated by the recent terrorism attacks on key infrastructure in Saudi Arabia.
The U.S. Energy Information Administration (EIA) has also been increasing its short term price guidance recently as well.
March 9, 2021
(STEO is the “Short-term Energy Outlook as provided by U.S. Energy Information Administration)
Sourced from EIA
The Alberta Government has stuck with its predictions from December 2020 of an average price in 2021 of $46 per barrel, despite the current price of approximately $65, which is toward the high end of the range based on their guidance.
On the contrary, the forward NYMEX WTI Crude Oil curve would suggest the price is ahead of itself and will be dropping off toward the end of 2021 and staying in the $50 to $55 range for most of 2023 and 2024.
What to make from all the Data?
The one thing the “experts” seem to agree on is the direction of the price of oil over the next couple of years. Despite the WTI Forward Curve, most economists included here, are expecting the current price to at least be maintained, if not increase through 2022. There seems to be consensus that demand will be picking up faster and production will grow to meet demand. However, over the next year or so, the production growth is likely to lag, which will cause upward pressure on the price. It would seem by mid 2023, the market is likely to return to balance and we will start to see pricing settle in the $50 to $60 range.
Now having said that, all oil predictions need to come with the caveat “subject to what OPEC does”…
