‘More oil price upside than downside in the near term,’ observers say

Paul de Leeuw, director of RGU's Oil and Gas Institute
Paul de Leeuw, director of RGU's Oil and Gas Institute

Unpredictability is the only certainty in the world of crude prices. But oil industry observers believe crude prices are more likely to rise than fall over the coming months.

Brent climbed above $85 per barrel at the start of October – its highest price since 2014 – as traders expected US sanctions to take a chunk of Iranian supply off the market.

But the global benchmark was soon on a downward trajectory after Washington granted sanctions waivers to some of the Middle Eastern country’s biggest customers.

Pressure was also put on prices by rampant production from some of the world’s biggest oil nations and concerns over the state of the global economy, made worse by the prospect of a trade war between the US and China.

Brent sank to just over $50 towards the end of December, but new production cuts agreed by the Opec cartel and its allies stopped the rot. Tensions between Washington and Beijing have shown signs of easing, and US stocks are understood to have gone down, allowing prices to nudge back to $60.

Paul de Leeuw, from Robert Gordon University, said: “Volatility has been the name of the game in recent years and I certainly expect to see a degree of unpredictability continue in the near term. The level of volatility is likely to be a function of Opec and non-Opec countries’ compliance to reduce supply, shale production in North America, the level of new investment in the industry and the wider impact of global politics and economic growth. However, looking at the fundamentals, it is likely that there is more oil price upside than downside in the near term.”

KPMG’s Martin Findlay said: “The US needs the oil price to be in the $50 to $55 range for their producers to break-even. That, plus the underlying strength of global demand and the long-term nature of the transition to renewable energy, would reduce the downside risk of the price falling outside the $50-70 range. There is arguably greater upside potential than downside.”

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