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Oil price dynamics

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Since the turn of the century, the price of oil has whipsawed significantly, falling 75 per cent between November 2014 and March 2016 alone. Over the last 20 years, the market has moved from Peak Oil to Peak Production of oil, to one of Peak Demand for oil. 

Speaking about how he views oil price dynamics in conversation with Erik Norland, Senior Economist, CME, Doug King, Partner at RCMA Capital, a London-based commodity trading firm, said that with the shale oil revolution in the US, with technology improving annually, “there is enough oil and enough production capacity to sate the demand for the next 15 to 20 years”.

With major oil companies only just moving into the space, King said the shale oil revolution has only just started.

“I think this is going to accelerate production; 20 million barrels in the next five years is certainly possible,” said King. 

At present, 12.1 million barrels/day are being produced in the US. When asked what they think US oil production will be closest to by 2025, 48 per cent of the audience said 15 million barrels/day.

If shale oil grows 1.5 million barrels/day, it will meet global demand growth per year, meaning all of that market share growth will go to the US. 

“I think OPEC is okay with that provided you get a window of maybe 10 years at USD70-75, while Saudi Arabia weans itself off oil. OPEC are clear that they will support prices, and are supporting prices. They are getting some geopolitical help in this. US sanctions on Iran have taken 1.5 million barrels/day off the market, and then there’s the Venezuelan situation. We think production is down to 700,000 barrels/day. 

“Saudi Arabia is able to pump 10 million barrels/day and able to get USD70/barrel but that could change, especially if Iran was allowed back into world markets and produce 4 million barrels/day,” outlined King.

Asked to vote on when OPEC will next raise production, 43 per cent of the audience felt it would be in 2020.

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