Oil prices are likely to remain priced around $60 per barrel for the best part of the next decade before increased use of renewable energies starts pushing prices down consistently, a leading UK economic think-tank has said.
“A year ago we made an aggressive forecast for oil prices that had them falling to $40 by 2032. In retrospect, that was probably too aggressive and it now seems likely that growth of demand in non-OECD countries will be more robust than had been assumed when we made the forecast,” the London-based Centre for Economics and Business Research said in a study on the effects on oil prices of an Opec without long-standing member Qatar, but in closer co-operation with Russia.
“We now forecast that the price of oil will cycle around $60 until the mid- to late- 2020s before the effects of conservation and increased renewables start pushing the price down,” it said.
“Though energy price forecasting is a dangerous game, it seems clear that at some point the competition from cheaper energy and suppression of oil demand by regulation will push prices down,” said the research centre.
It also expects further divergence between the prices of Brent crude and West Texas intermediate, the respective benchmark oil prices in Europe and the US.
“For most of the 2015-2017 [period] there was little price difference. But increasing US supply, a surplus of US coastal shipping capacity and weaker European supplies have led to a gap of nearly $6 per barrel emerging between the two. This gap is expected to persist for the next two years,” it said.
The research centre also said that the wholesale price of home-heating gas, or liquefied natural gas, which historically ran at about 75% of the price of crude oil on an energy equivalent basis, has in the past 10 years varied from 10% to 200% of the price of oil and is currently close to its 10-year average of about 35%.
“Increased supplies from a range of sources, including fracking in the US, have been responsible for this.
“With increasing interconnection of the global gas market and growing complexity of the energy sector, it is likely that both price fluctuations and divergences will increase,” it said.
The Organisation of the Petroleum Exporting Countries (OPEC) and its Russia-led allies agreed on Friday to slash oil production by more than the market had expected despite pressure from the US to reduce the price of crude.
OPEC members will curb output from January by 800,000 barrels per day, while non-OPEC allies contribute an additional 400,000 barrels per day of cuts, in a move to be reviewed at a meeting in April.
Oil prices jumped about 5% to more than $63 a barrel on the agreement.