The tight supply of crude oil in the global market may drive the price of the Brent crude to between $100 and $110 per barrel this year, a report has indicated.
Oil output from the Organisation of the Petroleum Exporting Countries (OPEC) had fallen in December to the lowest since May 2011. The global oil output survey, which was based on shipping data and information from sources at oil companies, OPEC and consultants had revealed that the drop in output left supply below OPEC's nominal target of 30 million barrel per day (mbpd) for a third month.
But an analyst at Renaissance Capital (RenCap), Ildar Davletshin argued that $100 to $110/bl Brent price for 2014 was a realistic range that is higher enough to motivate new investments needed to add more supply.
However, Davletshin in the report expressed concern over the relative stability of crude oil prices.
“We see risks of higher oil price volatility this year which would increase the value of un-developed resources (by increasing their option value) and benefit holders of such assets at the expense of mature producers.
“This is one macro risk for our preference for second-tiers most of which are mature oil companies performing better in a stable or stably rising oil price environment,” the analyst added.
The most widely discussed United States Shale revolution was projected to add about 3.5mb/d of new supply by 2016 – less than what the world needs to replace annually. Added to that, was the expected 1.2mb/d growth in demand in the next two years.
“While the break-even price for most new production is in the $60-80/bl range – the price has to be actually higher to incentivise new investments and take extra risk. So it is really hard to see Brent go down below $100 over a sustained period of time.
“So the growth should be coming either at old countries restoring their production (Iraq, Iran, Nigeria to a certain degree), unconventionals (US for now) or new growth areas (Brazil, East Africa),” it stated.