Pulse.com.gh logo

Price Projections Uncertainty about the future of oil prices

The price of a barrel of oil in 2016 will hover around the current level of $35-36 dollars "plus or minus 10%."

  • Published: , Refreshed:

The market is uncertain about the future of oil prices heading into 2016. The industry has a history of boom and bust with prices at it lowest since the 1990s.

Analysts are predicting oil prices to hover around $35-36 dollar in 2016. However,  OPEC, the oil producing cartel, is predicting $70 per barrel by 2020 and $95 by 2040.

With the rise in interest rate by the U.S Fed reserve last week, analyst say oil prices will decrease further.

"Oil prices are very much linked to the policy of the US Fed, so the key trends are indeed connected with further price decline. The dollar is likely to strengthen, which will lead to a toughening of the Fed policy — meaning the dollar will leave the largest derivative oil market. From the point of view of the monetary situation, the oil price should fall," German Gref, Russia's former finance minister, said, Sputnik news quoted him.

The US economy is one of the most oil-dependent economies in the world, and increase in crude oil prices inevitably affects the rate of the national currency — the oil price increases, resulting in increased offer of the US dollar in the market, and the exchange rate goes down. According to Gref, the price of a barrel of oil in 2016 will hover around the current level of $35-36 dollars "plus or minus

The New York Times attributes it to the simple economics of supply and demand. United States domestic production has nearly doubled over the last six years, pushing out oil imports that need to find another home. Saudi, Nigerian and Algerian oil that once was sold in the United States is suddenly competing for Asian markets, and the producers are forced to drop prices. Canadian and Iraqi oil production and exports are rising year after year. Even the Russians, with all their economic problems, manage to keep pumping.

There are signs, however, that production is falling in the United States and some other oil-producing countries because of the drop in exploration investments.

On the demand side, the economies of Europe and developing countries are weak and vehicles are becoming more energy-efficient. So demand for fuel is lagging a bit.

Indicators point to a downward spiral of oil prices. OPEC scrapped output limits that could force oil prices up, Iran is due to return to the global oil market, OPEC and Russia continue to pump at record highs. Growth is slowing in China and demand for oil is dropping.  "We view the oversupply as continuing well into next year," Jeffrey Currie, head of commodities research at Goldman Sachs Group Inc., wrote in a note on Tuesday, adding there’s a risk oil prices would fall to $20 a barrel to force production shutdowns if mild weather continues to damp demand, Bloomberg reported. The bearish outlook has made investors buy put options - which give them the right to sell at a predetermined price and time - at prices of $30, $25, $20 and even $15 per barrel, according to data, quoted by Bloomberg. However, Russian oil firm Gazprom Neft CEO Aleksandr Dyukov makes the opposite prediction, Russia Today (RT) said.

"It is obvious that the decline in prices will be short. Anyway, in mid-term or long-term, the prices will return to the level that is fair and right for all - for consumers and producers. I am talking about $90-100 per barrel," the CEO of Gazprom’s oil subsidiary said this week. Iraq, one of OPEC's leading oil producer is hopeful of price rebound.

“There is no doubt that oil prices will rebound. This current level is too low, and it’s affecting oil producers. I think economic factors and fundamentals are still strong,” said Iraq’s Oil Minister Adel Abdul Mahdi last Sunday.

According to OPEC, less spending by major producers and prices at below $40 a barrel for a long period could affect future oil supplies and lead to a surge in prices, RT reported.

“If the right signals are not forthcoming, there is a possibility that the market could find that there is not enough new capacity and infrastructure in place to meet future rising demand levels, and this would obviously have a knock-on impact on prices,” said Abdallah El-Badri, secretary-general of the cartel.

OPEC also predicted that the reference basket, which measures the average price of crude produced by the cartel members, to rise to $70 per barrel by 2020 and $95 by 2040. Economists have said the falling oil prices will affect developing countries who heavily depend on sale of crude like Ghana.

President John Mahama in a state visit to Germany early this year said current fall in global oil prices will not have any negative effect on Ghana’s infrastructural projects. Addressing an investment forum of German private business owners from different professional backgrounds, the president said most ongoing projects in the country have already been financed. He however did express concern about the effect the falling oil prices will have on Ghana’s revenue from oil exports.

“Ghana is a modest exporter of oil; about 120,000 barrels per day of oil. Oil is increasingly becoming a significant addition to our revenues and so with the oil price behaving the way it is, definitely we will see a reduction in revenue on the budget side,” President Mahama analyzed. The president was also quick to add that since Ghana is a net importer of oil, it stands to gain substantially from the decline in prices. “It is a question of balancing and I think that overall if you strike the balance, we are a higher net importer of oil than exporter, and so I believe we will manage to balance things out.”

However,  Finance Minister,  Seth Tekper, during his presentation of the 2016 budget statement in November, 2015 hinted of a budget review if oil prices fall bellow 53.05 dollars in 2016. Government pegged its bench mark projection for a barrel of oil at 53.05 dollars for next year in line with the International Monetary Fund (IMF)’s.

Do you ever witness news or have a story that should be featured on Pulse Ghana?
Submit your stories, pictures and videos to us now via WhatsApp: +233507713497, Social Media @pulseghana: #PulseEyewitness & DM or Email: eyewitness@pulse.com.gh.

Recommended Articles