EIA Projects Continued Volatility In Oil Prices
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Volatility in crude oil prices will continue reaching a projected high of $252 per barrel for Brent crude oil in 2040, according to a long-term forecast released by the U.S. Energy Information Administration (EIA) on April 14.
EIA is required by law to make these long-term projections. In the case of crude oil, they made six different projections based on a set of different circumstances. The $252 estimate is based on the “High Oil Price” scenario, and the “Low Oil Price” is $76 per barrel.
Natural gas is not expected to be as volatile. In all cases, prices are lower in 2015 than the $3.73 per million British thermal units (Btu) average Henry Hub spot price in 2013, and in most cases they are above that level by 2020. The Henry Hub spot price is $4.88/million Btu (2013 dollars) in 2020 and $7.85 per million Btu in 2040, as increased demand in domestic and international markets requires an increased number of well completions to achieve higher levels of production. In addition, lower cost resources generally are expected to be produced earlier, with more expensive production occurring later in the projection period, according to EIA.
The entire Annual Energy Outlook 2015 can be found at www.eia.gov.
The growth in U.S. crude oil production, along with the drop in global crude oil prices, has altered the economics of the oil market. These new market conditions are assumed to continue with the average Brent price increasing to $76 per barrel in 2018, and growth in demand pushes the Brent price to $141 per barrel in 2040 (in 2013 dollars). The increase in oil prices supports growth in domestic crude oil production.
The “High Oil Price” case assumes higher world demand for petroleum products, less upstream investment by the Organization of the Petroleum Exporting Countries (OPEC), and higher non-OPEC exploration and development costs. These factors all contribute to a rise in the average spot market price for Brent crude oil to $252 per barrel in 2040, 78% above the Reference case.
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