Oil Price Trend Expectations – CleanTechnica

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Editor’s note: I wrote an article yesterday on why oil investors could be in for a big shock in the next 5–10 years. Under the article, I got into a little discussion with Juan Diego Celemín Mojica about oil price expectations in the next few years. He wrote the following as part of a comment, but it seemed worthy of standing alone as a full article, so here it is. —Zach

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I believe (key word: believe) that prices will tend lower in the medium term, and that this will affect high cost producers, including the US, Canada, Norway, a lot of South America, and probably even Russia.

Historic prices of oil normally stood between $10 and $40 per barrel (inflation adjusted), and that trend only broke with the Oil Crisis: we’re now at a “new normal” where prices stabilized around $40–$80 because of higher demand but also because of market manipulation by OPEC. As demand falters, I believe we will go back to the historic norm and oil prices seldom will be seen above $60.

A lot of new oil producers depend on prices higher than that, either due to high drilling/processing costs (US, Canada) or due to high exploring costs (Colombia, Brazil). Back in 2014, when oil prices fell to around $40, our production started sliding, going from a million then to 750,000 bd now, simply because the resources for exploration diminished and findings did not make up for the operating fields going dry. We’re seeing a similar process happen in the US right now, as drilling rigs have gone down every single week of the year save for the last one, meaning that production is growing in the near term thanks to existing fields, but new fields are not being developed and production will falter once the existing ones dry up.

My bet then is that we will see an “OPEC Renaissance,” as most countries find themselves unable to economically develop their oil reserves. The process is just starting, but if it pans out as I believe it will, in three years non-OPEC production could be greatly weakened. And if we happen to have a Hormuz blockade in a scenario where non-OPEC production has been dwindling for a few years, and OPEC has once again risen in importance, it will be far more difficult for the rest of the world to make up for those missing barrels.

It’s quite speculative, but it’s the way I see it going.