‘Oil prices will stay low for years’ as production rises

Petroceltic said yesterday that it and its partners had drawn up a short list for engineering services to develop its Ain Tsila gas asset in Algeria and said the award of the contract later this year would mark a “a milestone” in plans to export gas for the first time in 2018.

The announcement by the Dublin-based explorer came on the day that a Reuters analysis of derivatives markets suggested that oil prices will stay low for years to come, keeping a lid on inflation and helping boost global growth.

Oil has more than halved in value over the last year, thanks to huge oversupply, and many oil companies, particularly in the US, say they may soon have to rein in production, tightening supply, unless the market recovers.

That has led many analysts to predict that oil, on average around 5% of companies’ costs, will see price rises later this year or in 2016, pushing up inflation. But oil derivatives tell another story.

Contracts for delivery of crude oil in the future on the big commodities markets such as the New York Mercantile Exchange and the InterContinental Exchange show the price of oil in five years’ time has collapsed in recent months.

US crude now costs around $42 a barrel for delivery next month, and only about $20 more for delivery in 2020. Prices for all futures months for years to come, also known as the futures price “curve”, have come down sharply. Analysts say the futures curve is saying the current collapse in oil prices will be sustained because it has been driven by massive oversupply that is likely to persist.

Oil prices have collapsed over the last year as Saudi Arabia and other members of OPEC have increased production to try to protect market share.