CITI: OPEC's Days Look Numbered

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Photo: Getty

Oil prices increased by around 300 per cent over the past decade. During that time, OPEC countries went gangbusters.

But the days of soaring oil wealth are numbered, says Citi.

While Brent crude oil prices have recently gone up to around $118 per barrel, Citi commodities analyst Ed Morse and his team believe prices could fall to $90 as a result of global supply increases. 

Oil prices look likely to fluctuate in a range significantly below the $90-120 per barrel range in which Brent has traded since 2011 toward $70-90 by the end of this decade. Because of changing dynamics in the geographic spread of production of unconventional, as well as conventional supplies (notably from Iraq), and because of growing inroads that natural gas should have in displacing oil products in the transportation sector, OPEC should find it challenging to survive another 60 years, let alone another decade.

In particular, the following countries should get crushed by revenue declines if the price of Brent does indeed decline:

citi oil chart

Photo: Citi

Starting this year, they write, will begin to have “tangible impacts” on prices and eventually will “turn the global geopolitics of energy on its head.”

Meanwhile, North America could truly become oil independent. 

The probability of North American energy independence is extremely high, and even the prospects of energy independence for the US alone are real. This does not mean that the US automatically becomes isolationist or that defence expenditures necessarily become more questionable. But it does provide unexpected opportunities for the country’s foreign and trade policy. Will the US continue to provide security guarantees for its longstanding allies and sources of supply? Will China step in to buy supplies where the US no longer needs them, strengthening relations with new partners in the process? These changes will evolve over a period of years, not months, but the shifts are likely to be significant, with profound longterm implications.

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