- 13 Mar
Brent Crude Price Predictions
The Centre for Global Energy Studies predicts Brent Crude prices to drop 20% over the next three years. While today Brent Crude trades in the neighborhood of $125 a barrel, the Centre predicts Brent Crude to drop to $112 a barrel by the end of 2013, $100 a barrel in 2015, and $95 a barrel by the end of 2016.
The drop in Brent Crude prices is attributed to the wide range of new discoveries throughout the world. “The world has become a very exciting place for energy and there are possibilities everywhere,” said B.C. Tripathi, chairman of GAIL India Ltd. (GAIL), the country’s biggest natural-gas distributor. “Our options to get oil and gas now range from America to Australia.”
Spending on oil and gas exploration rose to a record $72 billion last year, as drillers look to replace aging fields with finds in countries with little or no history of oil production. Shell is increasing their exploration budget by 35%, and BP is doubling their exploration this year.
The U.S. may surpass Russia as the world’s largest energy producer in the next 10 years as output of natural gas and crude from shale rock formations climbs. China, the world’s biggest energy consumer, is estimated to have more gas trapped in shale than the U.S. and plans a second auction of shale exploration areas as it seeks to triple its use of gas to 10 percent by 2020. Other exploration projects include Tanzania, French Guiana, Angola, Argentina, Guyana, and Ireland.
“The price of oil has to come down because supply prospects are so positive,” said Manouchehr Takin, an analyst at the Centre for Global Energy Studies. “The rate of demand isn’t going to grow as in the past as we use resources more efficiently.”
It takes four to eight years from exploration to bringing supply to the market. Then it takes 3-6 months for crude oil to make its way through the refining process and make it into retail fuel prices. All things being equal on the refining side, a drop in Brent Crude from $125 a barrel to $112 per barrel would reflect a retail fuel price drop of $0.43 a gallon. A drop in Brent Crude to $95 a barrel would reflect an additional retail fuel price drop of $0.56 a gallon.
From a fuel price management perspective, we can expect continued volatility in retail fuel prices over the next five to ten years.
Bloomberg Businessweek reported this article here.