February 16, 2018
Let’s take a moment to reflect on the past year and see how the oil price predictions over the last 12 months fared. At the beginning of 2017, we at Rix foretold that “most pointers indicated another year of price rises” and there would be “a consistent edging up of the cost to oil to $65 per barrel” and lo and behold, in December 2017 the average price of oil was $63.94 per barrel and by the end of the year it had reached $66.87 (cue huge applause)!
But what can we expect for 2018 oil prices? Previous years have shown that the price of oil goes in swings and roundabouts – so for each month of rises, a major price crash could follow. Having said that, we don’t think prices are ready to fall just yet, although there was a slight dip in recent days, but who knows what 2018 will bring?
An ongoing factor is that the shale industry isn’t moving at many predicted and many of the surviving companies of 2014-15 are still in significant debt having borrowed heavily to stay in business. As you can imagine, it was hardly welcome news when the US Federal Reserve raised interest rates on two separate occasions last year by 0.5%. This effectively doubled the debt repayments for shale operators. Following the OPEC’s decision to cap production throughout the year, we can rule out shale as a factor in bringing prices downwards in 2018 and we fail to see how conventional oil exploration will do that either. And for the non-OPEC and the Oil Majors, much of their focus has now shifted from oil to gas and to a lesser extent, renewables. We’re already aware that since 2014 conventional oil exploration requires long-term financing and a traditional oil project has fallen by 25% annually. To put it bluntly, the focus of Big Oil is not to invest in new projects but to cost-cut because of the recent low price environment.
Some predict in 2018 that demand will be a dominant factor much like it was last year, unlike in the period 2014 – 2016 when it was supply and not demand that ruled the oil price landscape. Last year, the world consumed 97 million barrels of oil (per day) giving 2017 the record of most oil consumed than any other year and this will be beaten again in 2018 by approximately 2 million barrels per day.
Global oil consumption has risen every year since 2008 so the annual increase in demand is nothing new, the only difference being that between the years 2014 to 2016 oil suppliers easily absorbed the demand growth but this not the case for 2017 nor will it be for the coming 12 months, making it difficult to predict the price oil for 2018 (which is a perilous game at the best of times).
Taking that into consideration and today’s oil price at $63.98 per barrel, it is likely we will see prices move seasonally like we experience in the heating oil industry, slowly dropping at the beginning and then rising towards the back end of the year, and then potentially finishing higher than last years $66.87.