Oil’s Future – 11/22/16

OPEC has raised its forecast for global oil demand through the end of the decade on oil’s lower for longer prices spurring consumption.

The group put crude at about $40 a barrel in 2016, increasing by $5 a barrel through 2020.

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As far as the future for oil prices, the IEA has suggested that an oil price surge triggered by a successful OPEC agreement could start faltering again within nine months to a year on revived U.S. drilling.

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U.S. crude output peaked in June last year, when the country produced an average of 9.61 million barrels a day. It’s fallen about 10 percent to 8.69 million barrels since then, according to Bloomberg.

Exploration for new crude deposits has declined substantially on low prices raising concerns about future supplies not meeting demand; however, many companies are predicting the opposite. Royal Dutch Shell Plc, the world’s second-biggest energy company by market value, predicts demand for oil could peak in as little as five years.

“We’ve long been of the opinion that demand will peak before supply,” Shell Chief Financial Officer Simon Henry said on a conference call on Nov. 1.

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Oil output is most at risk of a shift in investment away from discovery to finding alternatives to it. Fuel efficiency standards are already putting downward pressure on demand as air pollution concerns push developing countries to get stricter and even favor alternative fuels. In addition, most major car makers have plans for mass producing more affordable $30,000 electric cars.

Fueling the pressure on oil, shareholders in both America and Europe are putting pressure on oil companies to explain how climate-change regulation could affect their business models. Shifts in public opinion and agreements to fight climate change only serve to discourage long-term investment in fossil fuels, oil included. Should oil use in transportation lose its price advantage over electricity and natural gas as the costs of batteries and gas fall, such a transition would accelerate rapidly.

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