Adam Pilarski, the economist from Avitas who years ago predicted oil prices would hit $40/bbl to the near-total disbelief by delegates attending the ISTAT convention where he made his prediction, proved nearly right. Prices dipped into the mid-$40s two-three years ahead of his forecast and for somewhat different reasons.
At this year’s ISTAT conference, Pilarski said that to predict oil prices, you need to look at two basic facts: the industry is not competitive and we are not running out of oil.
Here is a paraphrase synopsis of his comments.
- Oil cartels are basically unstable. Biggest country producers want to increase and keep market shares.
- Saudi Arabia, Qatar and Kuwait supply more than 50% of the global oil.
- My forecast assumed high prices would last longer and have a more significant fall. The Saudis acted sooner than I thought.
- The price run-up of 2007-2014 was politically driven by Venezuela, Russia and Iran because their economies needed money and politicians needed it to stay in power. Saudi, OPEC went along.
- US oil production during 2007-2014 up 76%. Fracking changed realities. Fracking destroys the environment, kills endangered species, no bid deal, we can create new endangered species. (Sarcasm doesn’t translate well from verbal to print.)
- By 2014, Saudi miffed at Iran, ISIS, war in Syria, Russia. US-Iran talks. Saudis vowed to not cut production, vows never again to see $100 oil.
- Saudi has enough money to be undisturbed by price cuts. Saudi favors low prices now to kill efforts of alternative energies.
- Future oil prices: do not see $100 for a very long time, absent extraordinary events. I don’t see prices over $70 oil. I do see likelihood of catastrophic events (Russia, deflation, regional events).