ESAI sees $70-90/bbl oil over next 2 years

Marilyn Radler
OGJ Senior Editor-Economics

HOUSTON, May 6 -- In its latest Stockwatch Quarterly Review, Energy Security Analysis Inc. (ESAI), Boston, forecasts that over the next 2 years, the fundamentally sustainable price range for crude is $70-90/bbl.

ESAI Pres. Sarah Emerson said, “Obviously the price can break out of this range, and we see more potential for a breakout on the upside, but that will require either a supply-side event or signals from outside of the oil patch.”

The price forecast is based on six fundamental signals, including that the marginal cost of production outside the Organization of Petroleum Exporting Countries is set by Canadian oil sands. That cost, on a delivered basis, exceeds $65/bbl. This puts a flexible floor under prices for a period of time, ESAI said.

Another factor cited in the forecast is OPEC spare production capacity, which has climbed as a result of the recession and the organization’s subsequent pullback in output. Spare production capacity puts a flexible ceiling on prices.

Third, OPEC’s newfound spare capacity strengthens its hand in influencing prices, giving the organization the ability to prevent a large fundamental price rally by putting additional supply on the market. However, OPEC’s ability to respond to such a price rally will be hampered by the continued mismatch between OPEC’s predominantly sour crude oil and the predominance of low-sulfur petroleum products in the oil market.

The forecast also considered that coming out of the economic downturn, there is still ample refining capacity, and capacity utilization rates are at historic lows. Over the next 2 years, these utilization rates will grow, but there will still be significant spare capacity in the global refining sector, ESAI said.

The fifth fundamental driver behind the price forecast was that over the next 2 years, in a departure from the recent past, light, sweet crude production will rise by roughly 800,000 b/d in 2010 and 2011, according to ESAI. This growth will temper price spikes in the critical WTI and Brent markets.

Finally, even with a weak economy in Europe, slow recovery in the US, and sober assumptions on China, a double-dip recession is almost impossible without an unforeseen exogenous event, ESAI said.

Upside potential
ESAI noted that a potential development that could encourage a breakout to the upside is if oil demand surges beyond expectations in the next 2 years.

“Some forecasters are anticipating a slightly faster recovery, but ESAI’s projections are not overly conservative, therefore, it is unlikely that a demand “surge” would be dramatically higher than the projections presented in this publication. In sum, there is a risk premium in oil prices that forces the sustainable price range to begin at non-OPEC marginal production cost and extend higher,” the report said.

“But there is added risk of a breakout above the upper end of the range due to the fact it is harder to sustain supply than sustain demand. This is a reality that stems from growing populations and rising income in developing countries in the Middle East, Asia, and Latin America. This rising tide trumps the impact of weaker demand due to environmental policies and falling populations in mature economies,” ESAI said.

Non-OPEC supply
Over the next 2 years, non-OPEC output should enjoy a healthy renaissance, the report said, with Brazil leading the charge in higher production.

ESAI said Brazil should see output grow by 450,000 b/d through 2012, as a series of 100,000 b/d offshore fields come on stream. Over the same period, Columbian output should grow by nearly 250,000 b/d in response to the government’s aggressive courting of foreign producers. The US, Canada, Kazahkstan, and China will post increases near 200,000 b/d.

Even with output in Mexico and the North Sea dropping by a combined 1.5 million b/d through 2012, total non-OPEC crude production will still rise by over 600,000 b/d in this time frame, ESAI forecasts.

Including strong OPEC natural gas liquids growth—and higher alternative fuels output—supply growth outside OPEC will reach 2.5 million b/d over this period. This should limit the growth of the call on OPEC to just 1.9 million b/d through 2012. With total OPEC capacity conservatively rising by 1.4 million b/d at the same time, spare capacity should remain at comfortable levels above 5 million b/d, ESIA said.

Contact Marilyn Radler at

Related Articles

Buru awarded onshore Canning licenses

07/06/2015 Buru Energy Ltd., Perth, and Mitsubish Corp. have been granted two production licenses for Ungani oil field in the onshore Canning basin of Western...

Cenovus sells royalty business for $3.3 billion

07/06/2015 Cenovus Energy Inc., Calgary, inked an agreement to sell its wholly owned subsidiary Heritage Royalty LP to Ontario Teachers’ Pension Plan for gros...

CERI: Energy, operational efficiencies possible in Canadian oil, gas

07/06/2015 Measures can be taken by operators in the expanding resource-intensive Canadian oil and gas sector to improve both energy efficiency and operationa...

AGL Energy to scale back upstream gas operations


Gas retailer AGL Energy Ltd., Sydney, says it will exit the oil business and massively scaling back its upstream gas operations.

Macondo settlement seen ‘positive’ for BP

07/06/2015 BP Exploration & Production Inc.’s recent agreement to settle federal and state claims related to the 2010 Macondo blowout and spill improves t...

Emerging producers offered guidelines for governance

07/06/2015 Like most worthy endeavors, governing oil and gas activity at the national level is easier said than done-especially where oil and gas never before...

Nelson-Farrar Quarterly Costimating Indexes for selected equipment items

07/06/2015 The Nelson-Farrar refinery construction index rose to 2,475.6 by December 2012 from 2,467.4 in January of the same year. The index continued to ris...

Oman lets contract for Sohar refinery unit revamp

07/06/2015 Oman Oil Refineries & Petroleum Industries Co., has let a contract to MAN Diesel & Turbo SE, Augsburg, Germany, for work related to the ove...

Group suggests principles for Alberta royalty review

07/06/2015 The Canadian Association of Petroleum Producers (CAPP) has suggested that four principles guide Alberta in an oil and gas royalty review planned by...
White Papers

UAS Integration for Infrastructure: More than Just Flying

Oil and gas companies recognize the benefits that the use of drones or unmanned aerial systems (UAS) c...

Solutions to Financial Distress Resulting from a Weak Oil and Gas Price Environment

The oil and gas industry is in the midst of a prolonged worldwide downturn in commodity prices. While ...
Sponsored by

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by
Available Webcasts

Operating a Sustainable Oil & Gas Supply Chain in North America

When Tue, Oct 20, 2015

Short lead times and unpredictable conditions in the Oil & Gas industry can create costly challenges in supply chains. By implementing a LEAN culture of continuous improvement you can eliminate waste, increase productivity and gain end-to-end visibility leading to a sustainable and well-oiled supply chain.

Please join us for this webcast sponsored by Ryder System, Inc.


On Demand

Leveraging technology to improve safety & reliability

Tue, Sep 22, 2015

Attend this informative webinar to learn more about how to leverage technology to meet the new OSHA standards and protect your employees from the hazards of arc flash explosions.


The Resilient Oilfield in the Internet of Things World

Tue, Sep 22, 2015

As we hear about the hype surrounding the Internet of Things, the oil and gas industry is questioning what is different than what is already being done. What is new?  Using sensors and connecting devices is nothing new to our mode of business and in many ways the industry exemplifies many principles of an industrial internet of things. How does the Internet of Things impact the oil and gas industry?

Prolific instrumentation and automation digitized the industry and has changed the approach to business models calling for a systems led approach.  Resilient Systems have the ability to adapt to changing circumstances while maintaining their central purpose.  A resilient system, such as Maximo, allows an asset intensive organization to leverage connected devices by merging real-time asset information with other critical asset information and using that information to create a more agile organization.  

Join this webcast, sponsored by IBM, to learn how about Internet of Things capabilities and resilient systems are impacting the landscape of the oil and gas industry.


Taking the Headache out of Fuel License and Exemption Certificates: How to Ensure Compliance

Tue, Aug 25, 2015

This webinar, brought to you by Avalara, will detail the challenges of tax document management, as well as recommend solutions for fuel suppliers. You will learn:

-    Why it’s critical to track business partner licenses and exemption documents
-    The four key business challenges of ensuring tax compliance through document management
-    Best practice business processes to minimize exposure to tax errors


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!


Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected