OIL PRICE OUTLOOK / From Current Dynamics to 2100 Scenarios

Introduction

Oil prices are one of the most important items affecting the trends in the global economy. In addition to global effects, being the price levels directly influencing the individual budgets and preferences, sociological impact reaches much higher levels than the expectations.

To interpret the impact levels of price fluctuations for different social roles;

  • Short term fluctuations are important nearly for whole different roles and groups, such as: consumers, governments, producers, traders, investors and ordinary individuals.
  • But mid and long term projections are important for the investors, analysts and governments. For example, before taking a final investment decision (FID) for oil development projects, minimum 25 years of oil prices have to be estimated. And for governments to be able to plan successful budget policies, again long term estimations of oil prices are important.

In this regard, long term oil price estimations becomes substantial for mainly investors and the governments.

In order to make long term estimations for oil prices, initially we have to determine the roles and tendencies of main variables in the price equations. There are many different elements that are affecting the prices in the oil markets. To have a generalization, we can assume that;

  • Supply – demand balances, including: new discoveries, stocks, number of drillings, production levels, interruption decisions, long-term contracts, development declarations and etc.
  • Economic trends, like: global economic growth, GDP rates, substitution markets, us dollar parity, alternative investment opportunities, purchasing power and etc.
  • Risks, such as: perceptions, political tensions, terrorism, security issues, natural disasters, unusual factors, biological or chemical treats and etc.
  • Black oil capacity and their prices

are the main four categorized drivers in oil price equations. While sometimes, some of these elements have individual effects on the equation and sometimes they may also affect the other variables and have a bigger impact on the generalized equation. Such as, today’s most popular issue: Corona virus!

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Oğuzhan AKYENER

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