by Mac Slavo, SHTFPlan:
With oil trading under $40 and threatening to unhinge the entire industry from Texas to Russia, analysts the world over are working overtime to predict what happens next. Some, like financial investment firm Goldman Sachs, say the price could go as low as $20 per barrel because of a major supply glut evidenced by the scores of full oil tankers anchored off the coast of the United States and elsewhere. At the same time, others suggest the next spike to $100 could be just around the corner.
This week the Organization for the Petroleum Exporting Countries (OPEC), which essentially controls the supplies behind the majority of the world’s oil production and has thus far refused to reduce oil output, released a report indicating that low oil prices are here to stay and that it could be at least two decades before prices return to triple digit levels:
The OPEC published its World Oil Outlook 2015 (WOO) in late December, which struck a much more pessimistic note on the state of oil markets than in the past. On the one hand, OPEC does not see oil prices returning to triple-digit territory within the next 25 years, a strikingly bearish conclusion. The group expects oil prices to rise by an average of about $5 per year over the course of this decade, only reaching $80 per barrel in 2020. From there, it sees oil prices rising slowly, hitting $95 per barrel in 2040.
Long-term projections are notoriously inaccurate, and oil prices are impossible to predict only a few years out, let alone a few decades from now. Priced modeling involves an array of variables, and slight alterations in certain assumptions – such as global GDP or the pace of population growth – can lead to dramatically different conclusions. So the estimates should be taken only as a reference case rather than a serious attempt at predicting crude prices in 25 years. Nevertheless, the conclusion suggests that OPEC believes there will be adequate supply for quite a long time, enough to prevent a return the price spikes seen in recent years.
Part of that has to do with what OPEC sees as a gradual shift towards efficiency and alternatives to oil.
On the surface the current environment suggests that OPEC’s assessment may be somewhat accurate. Yet, one can’t help but think that maybe OPEC is playing mind games with the U.S. shale industry, which blossomed over the last few years as prices skyrocketed, creating more demand for jobs, housing and arguably being the single biggest economic driver since the crash of 2008.