That means though the movements will be volatile, that crude oil is as likely to be over $80 a barrel in the coming year, up from today’s price of around $64 a barrel, even as the consensus in the markets remains much more gloomy.
So far this year, there have been 24 barrels sold for every one burned. That means the price is driven by speculative demand rather than real supply and demand. There are many supply accidents waiting to happen from Venezuela to Africa. Sanctions on Russia are biting and projects are delayed.
Russia and other former Soviet exporters have recovered to USSR peaks but based on Soviet-era metrics and no new discoveries. Lower taxes are necessary to open new fields and infrastructure, but rising nationalism makes it difficult for governments to implement such policies.
Iran’s production is also falling and will be slow to recover — even if the expected Vienna nuclear pact is concluded, as expected. A boost in Iranian exports requires better fiscal terms and certainty over sanctions ending.
Production-sharing agreements are promised but this requires legislative changes which will be slow on such a sensitive subject.
Lifting EU and UN sanctions will be done quickly. Only the US Congress can lift US sanctions — and Congress is pro-Israel, and these sanctions have been in place since 1979.
The US president can temporarily suspend sanctions by implementing an executive order, but only for a six- month period at a time. There is no guarantee that the next US president will be as committed to détente with Iran as Barack Obama.
Investors require certainly to commit the necessary billions of euro investments to projects. So the development of Iranian oil — after 35 years’ neglect — will be a long road.
Most Arab Spring exporters have lost their oil export capacity with only Algeria unaffected so far.
Libya has collapsed by over 1m barrels daily since 2011. The new Saudi king seems accident-prone, obsessed with the Shia threat, as his intervention in Yemen shows.
The only bright spot is Iraq, where production is up 25% — but the Basra oilfields are only five hours drive from IS.
New fields require legal certainly, better fiscal terms and less bureaucracy. The commodities boom bust in 2014. Financial markets remain relaxed but the June OPEC meeting showed that the confidence of producers was increasing.
OPEC exporters privately report higher demand than western estimates. They remain divided but are no longer panicking. Meanwhile, the American fracking revolution has peaked. Drilling collapsed in November, and rig rates have now halved. Fracking has been cut back and US oil production is now falling slowly. These fields are not dead, and people still explore ‘sweet-spots’, but the speculative bubble has burst.
Many US operations will need higher prices to be brought back into production. And the fracking revolution has yet to be exported. Fracking is not dead, and costs will be driven down but this unconventional supply will only be a brake on future price surges.
Energy is a long-term cyclical industry: lead times are long so investment should continue through the cycle. Instead, investment has collapsed while demand recovered. The result? Another oil price surge.