Oil will blow past $80 a barrel in 2016

December 30, 2015

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The next big move in the price of oil will be up. For now, OPEC producers are flooding the market with cheap crude. But low-cost OPEC producers will win the hydrocarbon price war because they can fight harder for longer. And when they win, the price of oil will rise.

Brent crude has fallen about 40 percent over the last year to less than $40 a barrel as the Organization of the Petroleum Exporting Countries has sought to defend its market share by pumping record volumes of oil and driving profit out of higher-cost production. Shale oil drillers in America and offshore operators in areas such as the UK’s North Sea are among the most vulnerable. Improving wellhead efficiency has softened the blows thus far. But these gains will be harder to repeat in 2016.

 Graphic: Crude oil average

The International Energy Agency (IEA) expects shale oil production in the United States to shrink by more than 600,000 barrels per day next year if current low oil prices persist. At that rate, daily U.S. shale production would soon fall below 5 million barrels per day.

Lower prices will accelerate shutdowns in areas like the North Sea too. Energy consultancy Wood Mackenzie reckons that over a third of the area’s 330 fields could be threatened by early closure if prices remain below $85 per barrel for an extended period.

Like shale, the North Sea was once seen as a serious rival to OPEC’s cheap oil but now it looks like its first victim. Wood Mackenzie reckons that at least 1.5 million barrels of daily global production are uneconomic at $40. Those volumes make up no more than a couple of percent of supply. But the global oil market is finely balanced. Small changes can lead to big shifts.

As more high-cost production is either shut down or slowed down, OPEC’s pricing power will come to the fore. The IEA says oil prices will swill around the bottom of the barrel until 2018. If demand for oil rises with a global economic growth spurt – fuelled perhaps by the low cost of energy – the oil prices will move up sooner than that.

The precise price to be seen at any moment in 2016 is unpredictable. But elemental oil market forces suggest that a barrel of black stuff will revert back towards its 10-year mean above $80.

This view is a Breakingviews prediction for 2016. Click here to see more predictions.

23 comments

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Good. Raise the price of oil. Incentivize permanent alternatives. Natural gas is the obvious solution there. We already have a pipeline to every house in America. Needs no refining, no shipping, no middle east.

Posted by Solidar | Report as abusive

Oil is so XX century…

Posted by UauS | Report as abusive

Which figures, what sources? OPEC itself has stated that they do not expect that the authors “price point” to occur for over a year.
Shale, one can only assume the author means “fracking,” is constistently returning more gain for less investment, and at any rate can be easily and rapidly restarted.
Most “elemental oil market forces” suggest that the price per barrel will decrease for the foreseeable future. Most predict a slow rise to around 70 dollars per barrel perhaps in 2018. Mr. Critchlow is flat wrong.

Posted by operaghost | Report as abusive

Republicans vow to “Screw America Great Again.”

Posted by Solidar | Report as abusive

Not a chance

Posted by yobro_yobro88 | Report as abusive

I disagree.
The cost of continued pumping is much less than the cost of opening a new well.
The shale producers have already spent the up-front investment.
The marginal cost of production is much lower. In fact, they must keep producing to recoup their investments.
$40 is doable.

Posted by ckd1358 | Report as abusive

Good. Plenty of alternatives. Natural gas is more abundant than oil, needs no refining, no shipping, and no Saudi Princes involved. Oil is dead.

Posted by Solidar | Report as abusive

US exports approved now all we need is some big oil producers destabilized by color revolutions or civil war.

Posted by Macedonian | Report as abusive

Wishful thinking for prices to increase in 2016 because Oil production may decline but so will demand with A SLOWING GLOBAL Economy . . . .

More likely prices will breakthrough the $30 per barrel Floor before they rise to $45 !

Posted by JossSmith | Report as abusive

What a joke! Iran is going to pump an additional 5000,000 barrels a day in early 2016. And another 750,000 barrels a day by the end of 2016. They had sanctions on them.

DUH!!!

Posted by susan69 | Report as abusive

Yes, OPEC will win but only until the U.S. producers gear back up. We have hundreds of independents harvesting shale oil which caused an oil glut and low prices. Once the price rises again, they will start producing. Canada is building a pipeline to the Atlantic to sell oil to Europe. Even the Saudi’s see the end coming. They have begun searching for alternate forms of revenue that are not fossil fuel based. The days of OPEC world domination are fading.

Posted by jdanswers | Report as abusive

but shale production in the US will rise again when oil shoots back up…

Posted by TPJ94 | Report as abusive

Global oil market finely balanced? In the US alone, we have a stored amount of oil greater than at any time in our history. China development is down and going lower. Wind, solar and electric transportation is increasing and will be soon be low enough in price to be available to even lower middle class consumers.

Posted by annie248 | Report as abusive

Some poorly educated low IQ newspaper writer claims he knows what will happen withe the price of oil. If this guy was that intelligent, he wouldn’t be working for Reuters. The true facts are no one knows what the price of oil will be in 2016.

Posted by freebird370 | Report as abusive

This article is a hypothetical think-piece. In reality, oil will self price-correct and remain at the right price for this time in history for the next several decades and then go even lower as demand fades due in major 21st century advances in alternate fuel and power sources, including a 3000 mile range electric car that can recharge in one night. Eventually, oil will cater mainly to the hobbyist segment that continues to run 20th century cars on archaic gasoline engines even as cheaper, cleaner alternatives become available.

Posted by Goober1 | Report as abusive

No No NO….I think oil will go to $300/barrel this year. Why? Because I do….thats why. How much more ridiculous can this article get?

Posted by howsad | Report as abusive

The fall of Oil was predicted way back in year 2000 by Saudi Oil Minister Google Search “Sheikh Yamani predicts price crash as age of oil ends”… because lots and lots of oil have been struck… the fall has been elongated by sanctions on Iraq & Iran… Sheikh Yamani had not accounted for Shale Gas production… Saudi’s are cashing every last drop of oil before the price drops to ZERO!!!

Posted by PlugInCaroo | Report as abusive

They will do anything they want because nobody will stop them or even knows how.

Posted by holnam | Report as abusive

It seems to me once oil moves up toward $80 a barrel those shale oil and North Sea oil producers will be able to once again produce more oil at a profit, bringing a new glut of oil to the market and sending prices down again. Why would this not be true?

Posted by vortex100 | Report as abusive

Which will in turn be only temporary, as the moment the price point gets back up to the still relatively low $45-50/barrel, the new production in North America will start increasing again.

Posted by maddog2 | Report as abusive

Seems the other influence will be the geopolitical situation in the Middle East. Any threat of further belligerence, between Iran and Saudi Arabia will be start of significant movement. Also keep a close vigilance on Israel in this precarious situation.

Posted by Franco39 | Report as abusive

You will see God before you see $80 a barrel.

Posted by screen_name1 | Report as abusive

This sounds far-fetched. Its crazy to imagine price at 80$ in the near future. The producers in the USA must be dumb to let such an opportunity go by, by the way they are more than intelligent.The only possibility for the price to reach ridiculous figures is to keep the sanctions on Iran and to expect greater turmoil in the Middleeast. America is playing its cards correct.

Posted by Sensiblebg | Report as abusive