Are the days of $100+ per barrel are over?
I forecast oil will trade within a range of $75-85 per barrel over the long-term as our analysis indicates this range incentivizes US oil production to grow at a pace that balances world supply and demand.
The three factors that will help keep a lid on oil prices for a long time to come include:
- the rise of Iran’s oil exports
- ample and scalable supply of US shale oil
- lagging emerging market growth
The new OPEC arrangement will put a floor on oil prices, while supply from the US and Canada would provide a ceiling. This well-supplied oil market could certainly lead to prices higher than today’s $60 price per barrel, but well below the highs seen in recent years.
Oil from Iran: Probably not until 2016
According to the April 2015 joint statement from Iran and EU leaders, sanctions on Iran will be lifted after the International Atomic Energy Agency (IAEA) has verified the country’s compliance on reducing its nuclear footprint, which may take upwards of 12 months.
When sanctions are lifted, Iran will be able to raise exports by 250-300 thousand barrels per day within three months, with most of that increase coming from its offshore storage of about 30 million barrels. Over the next 12-18 months, long-overdue investment in Iran by major global oil companies would help it raise production by about one million barrels per day, which is back to pre-sanctions levels.
All parties are in flux now
The North American shale oil boom is already allowing the US to disengage from Middle Eastern politics, evidenced by the US departing from Iraq and Afghanistan and limited military intervention in the ISIS/Iraq, Libyan, Syrian and Yemeni conflicts. At $75 to $80 per barrel WTI oil prices, I believe North America can achieve oil self-sufficiency in about six to eight years.
Russia is the biggest loser
Iran not only holds vast oil reserves, but also the world’s largest natural gas reserves after Russia. It also has the huge geographical advantage of being at piping distance from gas-hungry countries like China, India, and all of Europe.
A deal with Iran would advance the planned Pars pipeline (Iran-Turkey-Europe), allowing the EU to diversify its sources of natural gas away from troubled Russia. The Iran-Pakistan-India and Iran-Kazakhstan-China pipe dreams could also come true, enhancing Iran's position as the premier natural gas supplier and boosting Iranian revenues and political leverage – all at Russia’s expense.
This blog post is provided for informational purposes only and should not be construed as investment advice. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the authors only and do not reflect the views of Loomis, Sayles & Company, L.P. This information is subject to change at any time without notice.