In January 2016, oil prices almost retreated to the lowest level in more than four decades since 1974 (the first oil shock). The low point during this period was reached in 1998, triggered by the Asian Financial Crisis.
It is unclear where oil prices will head this year or next, with even OPEC members repeatedly failing to make accurate forecasts. Our estimate is that oil will be range bound at USD 25-40/bbl for the year, which was the range for inflation-adjusted prices from 1986 to 2003. This range is low enough to make a significant amount of supply uncompetitive, while allowing the Arab states to survive. We also note that over the last four decades, the social costs for the key oil exporters have increased massively, significantly exceeding inflation. Thus, prices that had been sustainable from 1986 to 2003 for those countries may be unsustainable now.
In our Oil Industry Primer (available to all subscribers), we aims to provide a better and deeper understanding of the drivers and nuances of the oil market, beyond headline supply, demand and inventory numbers. We start with a brief look at the milestones in the history of oil, after which we cover key industry players before ending with current statistics.
