The price of oil is subject to a high and increasing level of volatility. Based on demand trends, the latest report from Crédito y Caución predicts that the price of oil will be in the range of $70 to $80 in 2019 and 2020, and will exceed $88 in 2025.
“ The underlying trend is for prices to rise due to increased energy demand, as emerging economies continue their development. Even if an aggressive energy transformation were pursued to stimulate greater energy efficiency and the supply of renewable resources, the demand for oil would increase ,” the report explains.
However, Crédito y Caución warns that crude oil price volatility will be high, clearly exceeding previous forecasts. " The market has long been characterized by low price elasticity, both on the demand and supply sides, but this may be changing. This is especially true with regard to supply ," the report explains.
The growing role of shale oil producers is altering OPEC's ability to set world prices through production restrictions. This implies that prices should be more stable, but they are not.
The credit insurer's report cites two elements that play a role in this volatility. First, the geopolitical environment has become more uncertain since the US administration opted for the America First approach. Second, the oil market has significantly reduced its reserves. Previously, OPEC attempted to drive US shale producers out of the market by lowering prices and pushing reserves to record levels. Now, production restrictions from OPEC and Russia, in addition to supply disruptions from Venezuela, Libya, and Angola, have reduced reserves to 2.800 billion barrels, well below the peak of 3.100 billion barrels reached in 2016. “ The market faces greater geopolitical uncertainty, in addition to having fewer reserves to accommodate this increased uncertainty. Hence the greater price volatility ,” the report explains.
