An oil forecaster who predicted last year's calamitous drop in oil says the price of a barrel of crude will get back to the $100 US level — but not for another five years.
In an interview with Bloomberg, PIRA Energy Group founder Gary Ross said that while he sees a long-term rebound in oil prices, right now there's simply too much oil in world markets for prices to return to where they were any time soon.
According to official data from the U.S. Energy Information Administration, the world pumps out about 95.46 million barrels of oil every day. But demand is only 93.63 million barrels a day — about two million barrels less.
That means that every day, oil companies supply the market with almost two million barrels more than the market demands, which caused prices to plummet once the imbalance began last fall. It's a situation the International Energy Agency describes as "massively oversupplied."
Shale oil revolution
Much of that oversupply is because of new technologies that allow U.S. companies to extract oil that was previously unreachable in so-called shale deposits — vertical layers trapped between rocks. There's so much shale oil coming out of the U.S. now that the country now produces more oil than Saudi Arabia — something that hasn't been the case since the 1970s.
Increasing America's oil output has been a goal of many U.S. officials, but at least in the short term achieving that goal has come at the expense of prices. Despite cheap oil, companies are doing anything they can do to avoid cutting production, because they need the revenue from selling oil: they can't easily close up shop and reopen later when the price of oil rebounds.
In the meantime, all that oil is piling up in storage. Some have even taken to filling up oil tankers and idling them offshore, waiting for prices to recover.
Even Saudi Arabia's oil minister Ali al-Naimi said that while he expects the price of oil will stabilize "eventually," OPEC is no longer assuming $100 per barrel in any of its medium-term forecasts.
But just as the supply and demand imbalance is unsustainable, so too is the current low price of oil, says Ross, who correctly predicted last summer that oil prices were in for a precipitous drop. "Current prices are unsustainable," Ross told Bloomberg. "It's hard not to see oil hitting $100 a barrel at some point in the next five years."
His main reason is the factor that has most often had the biggest impact on oil prices: geopolitics. Ross says tensions in the Middle East and other oil producing regions are likely to cause supply issues over the long term. Knocking out oil production from local skirmishes always drives up oil prices.
"There is such a great deal of uncertainty surrounding every producing country there, even Saudi Arabia," Robert Johnston, the CEO of The Eurasia Group, told CBC recently.
There are no fewer than four active wars currently taking place in oil-producing OPEC nations in the region, RBC Capital Markets noted in a research note to clients last month.
Oil back above $50 for now
In the short term, however, the picture is starting to get a little clearer. After seeming to trough in March at around $44 a barrel, oil has marched steadily higher to seesaw around the $60 level since April. Then last week, the price of benchmark WTI fell again on bleak economic prospects out of China, and the ongoing turmoil in Greece. WTI dipped below the $50 level for the first time in months on Monday, before recovering somewhat on Tuesday to settle at $50.36 a barrel.
"Fifty dollars is almost a fault line for bulls and bears to battle it out," BNP Paribas analyst Harry Tchilinguirian said. "If you want to choke off U.S. production, that price may have to move a bit lower. With $50 being that support level, this is where we will get some buying coming in."