Oil prices expected at around $65-$70 through 2023

Long-term expectations for the average price of Brent crude remain anchored around $70 per barrel, close to the $72 average realized in 2018. (Reuters)
Updated 16 January 2019

Oil prices expected at around $65-$70 through 2023

  • Despite the recent slump in oil prices, forecasts have edged down by less than $5 per barrel compared with the last annual survey conducted at the start of 2018
  • Brent prices in 2019 are expected to average $65 per barrel, unchanged from surveys in 2016, 2017 and 2018

LONDON: Oil prices are expected to oscillate close to current levels well into the next decade, averaging around $65-$70 per barrel through 2023, according to an annual survey of energy professionals conducted by Reuters.
Despite the recent slump in oil prices, forecasts have edged down by less than $5 per barrel compared with the last annual survey conducted at the start of 2018, and have changed little over the last three years.
Long-term expectations for the average price of Brent crude remain anchored around $70 per barrel, close to the $72 average realized in 2018.
The results are based on the responses from just over 1,000 energy market professionals to a poll conducted between Jan. 8 and Jan. 11.
Brent prices in 2019 are expected to average $65 per barrel, unchanged from surveys in 2016, 2017 and 2018.
In 2020, Brent is also expected to average $65 per barrel, revised down by $5 or less compared with prior surveys.
Far fewer respondents now see any risk of prices spiking to $100 or more by the end of the decade as a surge in US shale output has eased fears of supply shortages.
The proportion of respondents expecting prices to average more than $90 in 2020 has fallen to just 3 percent this year, from 13 percent at the time of the 2016 survey.
By 2023, prices are still expected to average $70, with most forecasts between $60 and $80, which suggests most energy professionals think there will be enough production developed at this level to meet consumption growth.
Among survey respondents, 26 percent are involved directly in oil and gas production (exploration, drilling, production, refining, marketing and field services).
Most of the rest work in banking and finance (18 percent), research (9 percent), professional services (9 percent), hedge funds (8 percent) and physical commodity trading (6 percent).
The results from respondents involved directly in the oil and gas industry were similar to those in other sectors.
Oil and gas insiders and those outside the industry have more or less the same outlook for prices in 2019 and 2020.
Insiders are marginally more bullish than outsiders on prices, but the difference is just $1.50 per barrel in 2019, rising to $3.50 by 2023.
Respondents exhibit more certainty about prices this year and next compared with subsequent years, which is natural given that uncertainty tends to increase over longer-time horizons.
Responses for 2019-2020 are tightly clustered, while expectations for 2021-2023 exhibit more variation. Even so, few respondents expect average prices to fall below $55 or rise above $85 in the next five years.
The level of uncertainty, as measured by the standard deviation of responses, has remained constant over the last four surveys.
Short-term uncertainty has remained little changed, with the standard deviation of responses for the first forecast year at $8 in 2019, compared with $7 in 2018, $6 in 2017 and $8 in 2016.
Long-term uncertainty has also held constant, with the standard deviation of forecasts for the fifth year at $19 in 2019, compared with $18 in 2018, $18 in 2017 and $20 in 2016.
There is no significant difference between oil and gas industry insiders and outsiders, with the level of uncertainty similar in both groups for both short-term and long-term prices.
Overall, most respondents expect the oil market to remain comfortably supplied in the foreseeable future, with prices oscillating around the current level or a little higher and relatively moderate volatility.


No more spending excuses for Merkel as investment bottlenecks ease

German Chancellor Angela Merkel gestures at her arrival for the government’s ‘Open Door Day’ in Berlin on Sunday Sam sit fuga. Et laut ute odi cum as elit. (Reuters)
Updated 19 August 2019

No more spending excuses for Merkel as investment bottlenecks ease

  • German leader urged to boost public investment by taking on new debt Sunducim velessunt alis plabore sernatur

BERLIN: German Chancellor Angela Merkel has fended off growing calls for more fiscal stimulus by citing the slow outflow of existing federal funds — but data suggests the money is indeed being used up as local authority bottlenecks gradually clear. With Europe’s largest economy on the brink of recession and borrowing costs at record lows, Merkel has faced pressure at home and from abroad to ditch her pledge to target balanced budgets and instead boost public investment by taking on new debt.
Merkel and her conservatives say Berlin has already earmarked billions of euros in investment for schools, nurseries and hospitals but that local authorities have spent only a fraction of this windfall.
But this excuse seems no longer valid: Figures from the Finance Ministry show that towns and municipalities are now tapping the federal government’s funds more actively, suggesting that planning and labor bottlenecks are easing.
Of €3.5 billion ($3.9 billion) earmarked in a municipal infrastructure fund for investment in schools, nurseries and hospitals (KInvFG I), local authorities have applied for nearly €3.4 billion, the data showed — roughly 96 percent of the overall amount on offer.
The fund was created in 2015 and initially meant to last until 2018. Due to the slow initial take-up, it was then extended to 2020.
Of another €3.5 billion put aside by the government in 2017 for school renovations (KInvFG II), authorities so far have tapped €2.4 billion, or 69 percent.

HIGHLIGHTS

• German towns tap into federal funds more actively.

• Improved outflow raises pressure to provide more money.

• Coalition parties at odds over debt-financed stimulus.

“As you can see, the program is running very well,” a Finance Ministry spokeswoman said, adding that the take-up had jumped by nearly €2 billion over the past 12 months.
“The figures show that there is planning progress in most federal states and that financially weak municipalities welcome the financial aid from the federal government,” she added.
The improved flow of funds is important for Germany, where heavily indebted towns and municipalities historically manage a large chunk of public spending and many citizens are annoyed by run-down local infrastructure and closed public facilities.

Austerity
Years of austerity linked to the national debt brake — a constitutional amendment introduced in the wake of the global financial crisis of 2008/09 to rein in public debt — have led to pent-up public investment needs in towns and municipalities worth a combined €138 billion, data from KfW Research shows.
“Towns and municipalities have been structurally underfunded for more than 20 years. They were forced to cut staff,” Gerd Landsberg, managing director of the German Association of Towns and Municipalities, told Reuters.
“That partly explains the initial problems with the slow take-up of federal funds — it takes time to hire new staff and get the ball rolling,” Landsberg explained.
The latest figures show, however, that authorities are overcoming those staff-related planning bottlenecks, meaning most of the money should be used up soon, he said.
Landsberg called on the government to provide more funding lines and improve the design of its programs.
“Short-term investment funds alone do not provide sufficient planning and personnel security. We must secure the financial strength of towns and municipalities in the long term.”
Like Merkel and her conservatives, Finance Minister Olaf Scholz of the jointly governing, center-left Social Democrats (SPD) has shown little appetite so far to ditch the balanced budget goal and boost investments through new debt.
Eckhardt Rehberg, the chief budget lawmaker in Merkel’s conservatives, is also sticking to the line that billions of euros still sit unused in various special-purpose funds.
“The debate about debt-financed investment programs misses the point. The problem is not a lack of money, but the sluggish outflow of funds,” Rehberg said.
Authorities must hire more staff, cut red tape and speed up planning and approval procedures, he said. “In addition, the construction sector has already reached its capacity limit, which means it can hardly cope with more demand,” Rehberg added.
Nevertheless, members of both the SPD’s own left wing and of the Greens, an increasingly strong opposition party, are pushing for a fiscal U-turn. Even the influential BDI industry lobby group, traditionally close to Merkel’s conservatives, last week called for a debt-financed fiscal stimulus package.
Cansel Kiziltepe, a lower house SPD lawmaker specializing in finance, said Merkel and the conservatives should stop blaming local authorities and rethink their insistence on incurring no new debt in their budgets, a policy goal commonly known as the “black zero.”
“Especially in times of economic weakness and in light of improved outflow of funds, it’s high time to say goodbye to the fetish of the black zero,” Kiziltepe told Reuters.