Crude Oil In The Next 5 Years: Will It Rise or Fall
11 Jul 2022
Brent Price Development & Key Influences:
The war between Russia and Ukraine and concerns that a potential global recession would reduce demand affected the price of international benchmark Brent crude oil in the first half of 2022.
After trading between $77 and $79 a barrel in the final weeks of 2021 and the first few months of 2022, Brent jumped over $100 in mid-February as a result of Russia’s invasion of Ukraine. In reaction to US President Joe Biden’s restriction on Russian fossil fuel exports, it increased to $139.13 on March 7.
The benefit was short-lived. By mid-March, Brent had fallen below $100 due to concerns over demand after China, the largest oil importer in the world, implemented additional Covid-19 lockdowns.
As additional nations followed the US in banning Russian oil imports and as it became increasingly likely that China would relax its Covid-19 limitations, the price steadily rose back over $100.
On June 14, Brent rose to $125 per barrel for the first time since March 9 as concerns about slow global economic growth were overshadowed by limited supply.
All seaborne imports of Russian petroleum products, which account for 90% of the bloc’s current imports of Russian oil, have been outlawed by the EU. The restriction is a part of broader international measures against Russia for its invasion of Ukraine.
In addition, the Organization of Petroleum Exporting Countries (OPEC) members’ production has been suspended due to the increasing political deadlock in Libya, further constraining the oil market. In a report published on July 4th, ANZ Research predicted that as a result of political upheaval, Libya’s oil output might decrease from 1.1 million barrels per day (mb/d) in April to 500–600 thousand barrels per day (kb/d).
According to OPEC’s monthly report on the oil market for June, 13 of its members produced a total of 28.51 mb/d in May, down from 28.68 mb/d in April. May saw a 0.15 mb/d drop in average global liquids output to 98.75 mb/d.
The Brent price has declined over the last two weeks, while supply is still constrained, as recession worries have returned.
WTI Price Development & Key Influences:
West Texas Intermediate (WTI) crude oil often costs less than Brent crude despite having less sulphur. This is owing to the fact that the long-term availability of Brent, oil produced in the North Sea, will be constrained by a natural decrease. As a result of rising shale and oil sands production in North America, the US has become a significant exporter.
But this year, as consumers looked for alternatives to Russian oil, the price of WTI, which is produced in the US, has been catching up to Brent. Both WTI and Brent are premium crude oils with low density and sulphur content that are light, sweet, and of excellent quality. Because light oil is simpler to distil, refine, and transport, refiners favour it.
Early in January 2022, WTI was trading at $76 per barrel and Brent was at $79 per barrel. WTI surpassed $130/bbl on March 7 as the US put a restriction on Russian energy imports, including oil and petroleum. Brent was left in the dust.
Similar to Brent oil, the price of WTI oil declined over time to under $100 in the middle of March because to worries that new Covid-19 lockdowns would reduce demand from China. Since there was still a limited worldwide supply of oil, the downward trend was only temporary. WTI rose back to over $100 and increased to $123.68 on June 14 before losing ground.
The Biden administration’s plan to limit US crude oil and product exports in an effort to control skyrocketing domestic gasoline costs has had an impact on the price of WTI crude oil in addition to other external variables.
Oil Price Forecast: 2025 to 2050
According to the EIA, the nominal price of Brent crude oil will reach $66/b by 2025. Global demand is predicted to push Brent prices to $89 per barrel by 2030. Prices are anticipated to reach $132/b by 2040. By then, the inexpensive oil sources will have run out, increasing the cost of oil extraction. Oil prices may reach $185/b by 2050.
By 2025, the price of a barrel of WTI is anticipated to increase to $64, before rising to $86 by 2030, $128 by 2040, and $178 by 2050.
The EIA predicts that as utilities depend increasingly on natural gas and renewable energy, demand for petroleum will level off. In addition, it is assumed that the economy expands by around 1.9 percent yearly while energy use declines by 0.4 percent annually.