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Rising Global Oil Demand And Future Prices

The International Energy Agency raised it outlook for 2017 global oil demand growth. US crude stockpiles rose sharply and gasoline inventories plunged due to impacts from hurricane Harvey. US crude jumps 2.2 percent to 5-week high, settling at $49.30, as demand outlook improves. Oil prices rose after the International Energy Agency said a global surplus of crude was starting to shrink, even though US data showed another big increase in crude inventories due to the ongoing effects of hurricane Harvey.

The market is reacting in anticipation of refineries restarting, at the same time expecting a decline in demand due to the after effects of hurricanes Harvey and Irma. The International Energy Agency, in its report, noted that the country’s reliance on the Gulf Coast makes it vulnerable to similar events like Harvey. Oil pump jacks in the Permian Basin oil field are getting to work as crude oil prices gain.

US crude production rebounded to an average of 9.35 million barrels per day from 8.78 million bpd a week earlier. In October, oil prices rose to $51.58/b from $49.82/b in September. It’s more than double the 13-year low of $26.55/b on January 20, 2016. Six months before that, oil had been $60/b (June 2015). A year earlier, it had been $100.26/b (June 2014). In 2016, US oil production fell to 8.9 million b/d. Because less-efficient shale producers either cut back or were bought. That reduced supply by around 10 percent, creating a boom and bust in US shale oil. The reason for recent volatility is foreign exchange traders. They drove up the value of the dollar by 25 percent in 2014 and 2015.

All oil transactions are paid in dollars. The strong dollar helped cause some of the 70 percent declines in the price of petroleum for exporting countries. Most oil-exporting countries peg their currencies to the dollar. Therefore, a 25 percent rise in the dollar offsets a 25 percent drop in oil prices. Since December 2016, the dollar’s value has been falling according to the DXY interactive chart. On December 11, 2016, the USDX was 102.95.

 

The price of a barrel of West Texas Intermediate oil is $5/b lower than Brent North Sea oil prices. WTI used to be $4/b less than Brent. They rose to $2/b when Congress removed the 40-year ban on exports in December 2015. Prices have been volatile due to swings in oil supply versus demand in 2015 and 2016. That’s because the oil industry changed in fundamental ways. In early 2017, hedge funds began shorting the dollar as Europe’s economy improved. As the euro rose, the dollar fell. By September 15, 2017, it had fallen to 91.84.

FUTURE PRICES

By 2025, the average price of a barrel of Brent crude oil will rise to $86/b (in 2016 dollars, which removes the effect of inflation). By 2030, world demand will drive oil prices to $95/b. By 2040, prices will be $109/b (again in 2016 dollars). By then, the cheap sources of oil will have been exhausted, making it more expensive to extract oil.

By 2050, oil prices will be $117/b, according to the EIA’s Annual Energy Outlook. By 2026, the United States will become a net energy exporter. It has been an energy importer since 1953. Oil production will rise until 2030, when shale oil production will slow. US oil production will decline slightly through 2050.

By 2025, the average price of a barrel of Brent crude oil will rise to $86/b (in 2016 dollars, which removes the effect of inflation). By 2030, world demand will drive oil prices to $95/b. By 2040, prices will be $109/b (again in 2016 dollars). By then, the cheap sources of oil will have been exhausted, making it more expensive to extract oil. By 2050, oil prices will be $117/b, according to the EIA’s Annual Energy Outlook.

By 2026, the United States will become a net energy exporter. It has been an energy importer since 1953. Oil production will rise until 2030, when shale oil production will slow. US oil production will decline slightly through 2050. The EIA’s forecasts all depend on what happens with US shale oil production, how OPEC responds, and how fast the global economy grows. The predictions given here are for the EIA’s most likely scenario.

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