Almost all oil-producing countries have overestimated the projected price for 2016. Last year, the three oil producing countries with the highest accuracy predicted an average of about $ 49 a barrel, but the price was only $ 43 per barrel barrel. Forecasts are important for oil producing countries as they are the basis for defining national budgets. It is important to note that the forecasts of the three major institutes, the New York Stock Exchange (NYMEX), the United States Energy Information Administration (EIA) and the Organization for Economic Co-operation and Development (OECD) improved their accuracy. Starting in 2012, these organizations had the smallest margin of error, shows the study “2017 Oil Price Forecast: Who Predicts Best?”, published by consulting firm Roland Berger. Starting with 2007, the company analyzed the forecasts of the largest oil producing countries and institutes.
“Both the oil-producing countries and institutions expect oil prices to increase in 2017,” sums up Arnoud van der Slot, Partner at the Roland Berger office in Amsterdam. “Permanent overproduction kept the price of oil at low levels after 2014.”
Institutions continue to have better forecasting performance
Forecasts of oil prices from NYMEX, EIA and OECD indicate a lower price increase than oil-producing countries expect. Since 2009, these forecasts have been more accurate than those of oil-producing countries, while before, the situation was reversed. The most accurate forecasts of the oil-producing countries were within a margin of error of 20%, while Iran and Kuwait had an error of less than 1%.
Codruţ Pascu, Managing Partner at Roland Berger explains: “Following the significant increase in US production, the influence of oil-producing countries on the price has diminished. According to our analysis, after 2010, the forecasts from oil-producing countries have become less precise compared to those from the institutions”.
In their budgets for 2017, oil-producing countries predicted an oil price between $42 and $72 per barrel (with an average of about $55 a barrel), while the institutions predicted a price in the 41-55 dollars per barrel (equivalent to an average price of just $50 a barrel).
Market dynamics are changing
The current situation is similar to that which was recorded in 1986. The price of oil was then low and it was also the result of overproduction. Today we see rising market shares for Russia and the Middle East, but also declining costs in US oil production. The possibility that the price of oil will remain in a relatively low range for a much longer period of time is increasing. The OPEC agreement of November 2016 to limit production to allow price increases can easily be canceled by increased production in the United States.
Currently, the price of oil fluctuates around $50 per barrel, in line with the values predicted by the institutions. According to Szabolcs Nemeş, Principal at Roland Berger’s office in Bucharest, in the context of these projected oil prices, fuel consumption on the local market is expected to increase. “This trend is supported by the continued increase in motoring rates and in average distances, amid higher consumer incomes. Improving fuel efficiency is also expected to influence fuel consumption, but it will likely only slightly diminish the trend of growth.”