Hopes of the Organisation of Petroleum Exporting Countries (OPEC) ever witnessing an oil price of $100 per barrels has been dimmed by the latest forecast from the International Monetary Fund (IMF), which expects crude oil prices to drop from the projected $62.31 per barrel to $58 a barrels in 2019.
Latest projection from IMF, which further suggest an annual crude oil price of $62.3 a barrel in 2018, expects crude oil prices to drop to as low as $53.6 per barrel by 2023, despite OPEC production freeze to boost price.
These projections were contained in the IMF’s latest World Economic Outlook released this week. Supply outages, the extension of the production agreement by OPEC, and stronger-than-expected global economic growth all pushed oil prices higher.Among key influences on oil prices, on November 30, 2017, OPEC agreed to extend to the end of 2018 the production target in place since January 2017.
This extension was the second (following the April 2017 agreement that had extended the November 2016 agreement).The agreement entails a cut of 1.2 million barrels a day (mbd) relative to October 2016 production. Russia and other non-OPEC countries agreed to stick to current production levels, implying additional cuts of about 0.6 million barrels per day relative to the October 2016 level.
Consequently, IMF stated: “Baseline assumptions for the IMF’s average petroleum spot prices, based on futures prices, suggest average annual prices of $62.3 a barrel in 2018—an increase of 18.0 percent from the 2017 average—and $58.2 a barrel in 2019.”IMF said that the decline is due to an expected increase of US supply and the eventual end of the OPEC deal.
According to the agency, uncertainty remains around the baseline assumptions for oil prices, although risks are balanced.“Upside risks include further declines in Venezuelan production and unplanned outages elsewhere. At the same time, stronger-than-expected US and Canadian production could push prices down sooner than predicted. However, the long end of the futures curve is expected to stay at about $55, given current technology trends”, it added.
Secretary-General of OPEC, Muhammad Barkindo said that the current price cycle should be considered unique for several reasons. He decried it as the most overwhelmingly supply-driven of all the cycles the oil sector has assessed. “Secondly, the magnitude of the price drop is the highest in real terms. Thirdly, the recent oil price drop has been considerably sharper than the decline in prices for other commodities, which is in stark contrast to the oil price collapse of 1985 to1986, when all commodity prices declined in a similarly steep manner. And finally, the downward cycle had equally negative ramifications for consumer countries in the Organization for Economic Co-operation and Development (OECD). The multiplier effects of this cycle were reflected in the deflationary pressures experienced by these countries,” he added.Barkindo disclosed that the OPEC Reference Basket price fell by an extraordinary 80 per cent between June 2014 and January 2016.
He added that investments were choked-off, with exploration and production spending falling by an enormous 27 per cent in both 2015 and 2016. “Additionally, nearly one trillion dollars in investments were frozen or discontinued, and many thousands of high quality jobs were lost. A record number of companies in our industry filed for bankruptcy”, he added.