Global oil price predicted to hover around $50 a barrel in 2017

09 March 2017 Consultancy.uk

The global oil price has fallen significantly since 2014, as demand growth faltered and the addition of supply from US shale and Middle Eastern markets have led to a period of oil glut. The predictions of countries and key institutions about the movement of oil has, in light of changes, suffered. Last year, institutions were considerably more accurate than oil producing countries; institutions have been more accurate on average since 2008. Going into 2017, institutions predict an oil price of $50 on average, while the top three most accurate countries for predictions point at $55 a barrel.

Development of monthly WTI averages

The price of WTI crude has fallen steeply, following a string of years of spikes above $100 a barrel, to lows not seen since the deep point of the financial crisis. Prices during 2015 averaged $49 per barrel, while last year the average stood at $43 a barrel. The price of oil remains, for the time being at least, an important indicator for sectors and businesses – getting the forecast generally accurate provides many with a background against which to make strategic decisions.

Absolute year-ahead oil price forecast error 2016

Forecasting accuracy

Each year a range of institutions and countries create forecasts, from a host of background information, about where the average oil price for the year ahead will fall. Roland Berger, in its '2017 oil price forecast: who predicts best?' information document, considers the accuracy of that forecast against the eventual reality.

While the forecasts for 2015 were a rout, with the average forecast out by around $65 a barrel, the 2016 forecast tended to be more accurate. Iran and Kuwait were the most accurate last year, predicting the eventual price within 1%. The top three most accurate forecasters between 1999 and 2016, Iraq, Nigeria and Saudi Arabia, were out by 12%, 15% and 16% respectively – each predicting a higher price. Venezuela, potentially for political reasons, was out by 75%, predicting a price of $75 on average.

Key institutions’ predictions of the oil price for 2016 tended to be more accurate than countries. The NYMEX was out by 2%, predicting $42 on average, while the OECD was out by 3%, predicting $45 a barrel. The EIA was the most inaccurate of the three institutions covered, predicting $39, thus out by 11%.

Yearly absolute error, oil price forecast, institutions and top three countries

The research also looked at the trend for forecasting accuracy between the top three countries and the three institutions. The analysis shows that a shift has taken place: the top three countries’ predictions have since the financial crisis become wildly less accurate, while that of institutions have becoming increasingly accurate.

In the years since the start of the crisis, 2009-2016 compared to the period 2002-2008, the research shows that institutions have seen their accuracy fall from out by 17% to out by 12%, while countries have since seen their inaccuracy increase, from out by 12% to out by 28%. Roland Berger Partner David Frans explains that a key reason for the shift is that "It appears that the oil-producing countries have less influence on the oil price since the rise of shale gas in the US. As a result, their forecasts, compared to the institutes', have become less accurate."

Oil supply under heavy pressure since 2014

Oversupply continues

The research considered the key trends in supply which are implicated in the current lower price per barrel of WTI crude. The firm shows that, since 2014 global supply have outstripped global demand, creating an oil glut and a reduction in the price.

The net oversupply has been considerable at between 1.5 million barrels per day and 2.6 million barrels per day between the last quarter of 2014 and the first quarter of 2016. While last year there was a brief period in which demand caught up to supply, the trend reversed again in the last months of last year as Iran’s production hit the global market and demand again fell.

The continued production from the US, which is now one of the world’s largest producers, the addition of Iran as well as continued reduction in demand as the global energy system transforms, have together contributed to a continued lower oil price environment without a large negative GDP factor – no recession.

Predictions of oil price into 2017

Oil price predictions for 2017

The predictions from the top three predicting counties and the three institutions, forecast that the year-averaged price of oil will rise in 2017 compared to the year previous. As of December 2016, the price of WTI oil stood at $52 a barrel, this is expected to fall slightly by institutions to an average of $50 a barrel across this year. The OECD predicts it will fall slightly however on last year’s average of $43, to $41.

The three countries are predicting the price to be somewhat higher than in 2016, Saudi Arabia for instance, predicts $72 a barrel, while Nigeria, $52. Iraq foresees the price to come in lower than last year, at $42 per barrel.

Frans reflects that the situation today is similar to that of 1986, "The oil price was low back then, too, and was also the result of oversupply. Today we're seeing growing market shares for Russia and the Middle East, and declining costs for American shale gas. I'm seeing a trend where the oil price could stay relatively low for much longer. Last November's OPEC agreement to limit production so that the price could rise could very well be negated by the increased production of shale gas in the United States."

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WEF finds no progress made on greening economy

01 April 2019 Consultancy.uk

The reports of two influential bodies, in the space of a day, have warned that no progress is being made to prevent major climate change. The World Economic Forum has warned that greening of the global energy transition has stagnated over last five years, while the International Energy Agency has confirmed coal use rose again last year.

The position of the Academies of Science from 80 countries, plus a majority of scientific organisations that study climate science, is that humans are causing rapid climate change – often referred to as global warming. Roughly 95% of active climate researchers publishing climate papers endorse the consensus position that since the industrial revolution, the boom in carbon emissions from fossil fuel powered human activity has heavily impacted the planet, with rising levels of CO2 and other greenhouse gases trapping heat from the sun causing global temperatures to rise – something which will have catastrophic results in the near future.

Despite the steadfast consensus among the scientific community on the matter, however, there has been little to no meaningful action to avert disaster. In fact, while the signing of the Paris Accord was met with great excitement, since it came into force, global carbon dioxide emissions have continued to rise. Today, they sit at their highest levels yet, after a strong economy and extreme weather stoked a surge in energy demand last year.WEF finds no progress made on greening economyAccording to the world’s energy watchdog, the Paris-based International Energy Agency (IEA), energy spiked by 2.3% in 2018 – the biggest leap since 2010 – with that demand largely being met with fossil fuels. As a result, global emissions of carbon dioxide hit the record high of 33 billion tonnes in 2018, a rise of 1.7% on 2017’s figures. Commenting on the findings, IEA chief Fatih Birol said the rise in energy demand was “exceptional” and a “surprise for many.”

Birol added, “We have seen an extraordinary increase in global energy demand in 2018, growing at its fastest pace this decade. Looking at the global economy in 2019, it will be rather a surprise to see the same level of growth as 2018.”

The suggestion from Birol that 2018 is likely to be an anomaly which will not be seen again is strange, considering the added strain which the boom in emissions will place on the environment. To suggest that heightened energy demand was driven by extreme weather – which is increasingly difficult to claim is unrelated to man-made climate change – and then to suggest that such a thing is unlikely to occur any time soon in spite of emissions having increased seems contradictory.

Regardless of this, the bad news was further compounded within hours of the IEA’s release. A report from the World Economic Forum released on the same day concluded that the world's energy systems have not become any greener in the last five years. Despite the agreement of global climate targets, falling green power costs, and mounting public and business concern over the catastrophic impacts runaway climate change could wreak, the WEF’s damning assessment warned that little to no progress has been made on making energy systems more environmentally sustainable since 2014.

Coal is the largest hindrance of change on this front, according to the report. Recent years have seen improvements in energy access and security, but far too many nations remain dependent on coal power for the new energy systems to have made any environmental gains. At the same time, major economies have failed to decrease or even slow the amount of energy they use per unit of GDP, leaving smaller actors who have made changes micturating into a gale. Change on the part of the world’s largest economies is therefore crucial to driving the development of a greener, more efficient global economy, the WEF concluded.

Commenting on the findings, Roberto Bocca, leader of the WEF's future of energy and materials division, said urgent action is now needed to move toward decarbonisation. He added, "We need a future where energy is affordable, sustainable and accessible to all. Solid progress in bringing energy within the reach of more and more people is not enough to mask wider failures, which are already having an impact on our climate and on our societies."

The news comes even as sustainability continues to be talked about as a ‘top agenda item’ at the majority of the world’s largest corporations. While 85% say that it will be more important still in another five years, it is clear that the majority of the world’s most powerful businesses are failing to walk the talk on the matter, regardless of what governments do.