The fine art of forecasting

Downstream, he thinks the outlook for refiners in the USA and Europe looks decidedly difficult. He shared his views at the Shell Global Solutions' Regional Symposiums in Barcelona and Calgary.

If the Organisation of Petroleum Exporting Countries (OPEC) had not re-exerted its influence over the market, the steep decline in the price of oil from an all-time high of almost $150 a barrel in July last year would have been even more dramatic, says Fesharaki.

Without OPEC’s swift move to cut daily production by nearly four million barrels a day, the price of oil might have fallen to as low as $20 a barrel,” he says. “This would have been bad for business, bad for oil producers and bad for consumers. It is worth stressing that it would also have been bad for those who are seeking to promote alternative sources of energy.”

So, following a period when it had seemingly lost control of the market, OPEC is back in business, having buoyed the price of oil at $55–60 a barrel – but for how long? Well, in Fesharaki's view, it could be some time before we begin to see the price spiralling upwards again. That production cut, which was mainly borne by Saudi Arabia, now constitutes excess supply. Add the new production coming on-stream in the Middle East, and it could be that the world will soon have up to eight million barrels a day of spare capacity.

With stock levels in developed countries expected to remain above average at least until the end of the year, possibly until the end of the northern winter, for the time being, the market seems reasonably well buffered against a significant rise in the oil price.

Fesharaki thinks that oil will finish the year at around the $60-a-barrel mark, and will then rise by $5–6 a barrel annually until it reaches $75–80 a barrel in two to three years. This would certainly be in  line with what OPEC would like to see; it has recently been signalling strongly to the market that $75 a barrel is the “right” price for oil.

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