Business Outlook 2018

Figure 3: Monthly Brent Crude Futures

1

80

70

2

60

50

3

40

30

4

20

Monthly Brent Crude Futures ($/bbl)

10

5

0

2018

2019

2020

2021

2022

2023

2024

2025

2026

6

Source: CME Group

There are three primary factors behind this trend that may limit oil price growth over the rest of the decade and into the 2020s:

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• North-American supply – prices in excess of $60/bbl encourage the activation of more rigs and therefore greater production from the shale plays across the US. This could effectively act as a price ceiling, with low fixed costs allowing operators control over whether they increase or slow supply in accordance with price.

8

• OPEC behaviour – the incentive for countries to comply with their production quotas becomes less appealing at higher prices, which in turn increases supply to the market.

• Global economic growth – there is uncertainty over whether the exceptional economic performance of 2017 can be maintained. Growth in major economies, including China and the US, may slow in 2018 and 2019, therefore reducing oil demand growth.

9

10

11

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