US EIA chief shares short-term outlook for oil market: Fuel for Thought
Monday August 8, 2016
The 100th episode of the weekly S&P Global Platts Capitol Crude podcast, which aims to demystify the complex world of US oil policy, featured Adam Sieminski, head of the US Energy Information Administration.
Here are excerpts from the interview, edited for space. Listen to the podcast in full.
Q: Where do you and EIA see prices headed?
A: The forecast in the STEO (Short-Term Energy Outlook) is probably pretty good. And what it says is we’re expecting the markets to begin to rebalance as we get towards the end of this year and as we get into the middle of 2017 we should see prices beginning to come back up again.
There must be some sense of that out there in the real world because the rig count has been inching up a little bit and that’s typically a sign that people in the business think that it might make some sense, their cost structure is more under control and prices are sufficient to keep them going.
One of the things that we do is we use a very sophisticated algorithm based on the Black Scholes work that was done back in the 1970s and to try to understand what near-term volatility is.
It’s remarkable, it says to get a 95% confidence level on oil prices you would have to have a range that’s as low as $20 or $25/b and as high as $90 or $100/b. So we know that there’s a huge, almost yawning gap in what oil prices could be. That doesn’t mean that you have to be at either end of those things, but it says that it’s a possibility.
Q: What do you think is going to drive oil prices above $60/b and, conversely, what could drop them below $30/b?
A: The typical thing that causes prices to go up is a geopolitical crisis somewhere. We’re seeing some of that going on right now in places like Iraq and Nigeria, Libya, there’s been a lot of social and political turmoil in
Venezuela and Venezuela’s still exporting more than 2 million b/d of oil to the global market. The downside risk generally tends to come with economic slowdowns. Do we learn that something is really going wrong in the economy in China which is responsible for a lot of the growth in oil consumption? Or how’s Europe doing? Or, for that matter, how’s the United States doing? The downside surprise is...
Venezuela and Venezuela’s still exporting more than 2 million b/d of oil to the global market. The downside risk generally tends to come with economic slowdowns. Do we learn that something is really going wrong in the economy in China which is responsible for a lot of the growth in oil consumption? Or how’s Europe doing? Or, for that matter, how’s the United States doing? The downside surprise is...