Oil by 2020 to fall to $80 in real terms -Reuters poll

Wed Oct 30, 2013 11:59am EDT

Related Topics

* 2020 Brent median of $95, $80 in real terms

* Bears: shale means increasing spare global capacity

* Bulls: shale not enough to meet demand growth

* Lowest 2020 poll forecast $70, highest $160

By Claire Milhench and Alexander Winning

LONDON, Oct 30 (Reuters) - Global oil consumers are likely to feel the benefit of much cheaper fuel by 2020 thanks to the U.S.-led shale boom, a Reuters survey found.

According to the median estimate of the poll, Brent crude will average $95 a barrel over the course of 2020, a drop of $20 from the estimate in a similar survey a year ago, even though spot oil prices have changed little since then.

Assuming an inflation rate of 2.5 percent per annum, that would mean Brent would cost only $80 in 2020 in real terms, or in today's money, down from $109 a barrel now.

Oil-importing nations have become accustomed to crude prices over $100 a barrel, with 2013 set to record a third year in succession of average prices near $110 a barrel for the Brent benchmark.

More than half of those polled in the Reuters survey of 20 consultants, banks and energy analysts said they expected rising supplies and fuel efficiency gains by consumers to push oil below $100 a barrel.

"Essentially you have a glut of supply against a backdrop of disappointing demand," said Julian Jessop at Capital Economics. "We see the shale gas revolution spreading, driving down prices and leading to a large pick-up in LNG (liquefied natural gas) supply."

Many in the industry have been caught off guard by the scale of the shale revolution.

Soozhana Choi, head of energy research at Deutsche Bank, pointed out that in July 2011 the U.S. Department of Energy forecast 2012 U.S. oil production growth of 30,000 barrels per day (bpd), whilst the International Energy Agency predicted U.S. supply growth of 50,000 bpd.

Growth came in at 1 million bpd.

Choi said that, "2012 laid the groundwork for the uptick in tight oil production; 2013 was the year when the logistics caught up with output".

ESTIMATES IN WIDE RANGE

Jessop was the biggest bear in the group, sticking with his 2012 forecast of $70 a barrel for 2020. The other bears fell into the $85-$95 range.

Rahul Prithiani of CRISIL Research calculated global spare supply capacity at 10 million barrels per day (bpd) by 2020, up from around 4 million bpd in 2012.

He expected demand growth to remain subdued at a compound annual growth rate (CAGR) of around 0.8 percent through to 2020, whilst supply was expected to increase significantly at a CAGR of 1.5 percent.

But several respected analysts said fresh supplies from shale would not be enough to meet the growth in demand, meaning prices would need to rise.

Bernstein Research was the most bullish, forecasting $160 a barrel for 2020. Like the other bulls, Bernstein was sceptical about how much global impact the shale revolution will have.

"There appear to be no major candidates for shale expansion outside the U.S.," Kiran Ahmed of Oxford Economics said. "The U.S. is advantaged by its infrastructure, land ownership rights and relatively low population density compared to, say, Britain."

The huge price range in the poll - $90 between the lowest and highest forecasts - reflected the uncertainty facing the global oil industry.

"Tight oil is such a new phenomenon that the market hasn't really reached a consensus on what the long-term picture will be," Deutsche Bank's Choi said.

"We assume that in the next five years, shale oil is a purely North American phenomenon," said Mike Wittner, head of commodities research for the Americas at Societe Generale. "With that being the case, on the supply side we'll continue to get a balanced market." (Reporting by Claire Milhench and Alexander Winning, editing Richard Mably and Jane Baird)

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