The following sample essay on ”Oil Price Forecast 2025 and 2050″ analyzes the oil market and then comes up with a price per barrel forecast.
The volatility in oil prices makes it difficult to precisely forecast them. But the EIA has bravely done so. It forecasts that, by 2025, the average price of a barrel of Brent crude oil will rise to $81.73/b. This figure is in 2018 dollars, which removes the effect of inflation. By 2030, world demand will drive oil prices to $92.98/b. By 2040, prices will be 5.
16/b, again quoted in 2018 dollars. By then, the cheap sources of oil will have been exhausted, making it more expensive to extract oil.
By 2050, oil prices will be $107.94/b, according to Table 1 of the EIA’s Annual Energy Outlook. The EIA has lowered its price estimates from 2017, reflecting the stability of the shale oil market.
By the end of 2019, the United States will become a net energy exporter, exporting 1.1 million barrels more than it imports. It had been a net energy importer since 1953.
Oil production will rise until 2027 when it levels off at around 30 million b/d.
The EIA assumes that demand for petroleum flattens out as utilities rely more on natural gas and renewable energy. It also assumes the economy grows around 2% annually on average, while energy consumption increases 0.4% a year. The EIA also has predictions for other possible scenarios.
How Oil Prices Could Rise Above $200 a Barrel. Oil prices reached a record high of $145/b in 2008 and climbed to $100/b in 2014. That’s when the Organization for Economic Cooperation and Development forecast that the price of Brent oil could go as high as 0/b by 2020.
It based its prediction on skyrocketing demand from China and other emerging markets.
Prices this high seem unlikely now that shale oil has become available. It’s also unlikely as the world shifts to renewable energy as a way to combat global warming. Oil and gasoline contribute to greenhouse gases that lead to climate change.
The idea of oil at $200/b seems catastrophic to the American way of life. But people in the European Union were paying the equivalent of about $250/b for years due to high taxes. That didn’t stop the EU from being one of the world’s largest oil consumers. As long as people have time to adjust, they will find ways to live with higher oil prices.
The year 2020 is less than a year away, but look at how volatile prices have been in the last 10 years, ranging between $26.55/b and $145/b. If enough shale oil producers go out of business, and OPEC teams up with Russia to form a global cartel, prices could return to their historic levels of $70-$100 a barrel. OPEC is counting on it.
The OECD admits that high oil prices slow economic growth and lower demand. High oil prices can result in “demand destruction.” If high prices last long enough, people change their buying habits. Demand destruction occurred after the 1979 oil shock. Oil prices steadily deteriorated for about six years. They finally collapsed when demand declined, and supply caught up.
Oil speculators could spike the price higher if they panic about future supply shortages. That’s what happened to gas prices in 2008. Traders were afraid that China’s demand for oil would overtake supply. Investors drove oil prices to a record $145/b. These fears were unfounded, as the world soon plunged into recession and demand for oil dropped.
Keep in mind that any perceived shortage can cause traders to panic and prices to spike. Perceived shortages could be caused by hurricanes, the threat of war in oil-exporting areas, or refinery shutdowns. But prices tend to moderate in the long term. Supply is just one of the three factors affecting oil prices.