If the current low level of oil prices lasts six months, the oil industry’s strategy and oil-exporting and oil-importing countries’ economic situation will not be severely affected. The situation will obviously be completely different if the oil price remains low for several years. We therefore seek to determine the likely duration of the period of low oil prices, and we examine:
– Historical precedents;
– The outlook for growth in global demand for oil (according to global growth and its composition, and changes in the oil price);
– The outlook for growth in global oil production capacity (according to the recent level of investment in exploration & production);
– The behaviour of OPEC (Saudi Arabia).
Our analysis (see detailed figures in the Conclusion) leads us to believe that the oil price could remain low (although not as low as at the end of 2014) throughout 2015 and 2016.
When we look at the oil price over a long period (in absolute terms or relative to consumer prices in OECD countries, Chart 5), we see that prices fell as much as now in 1985-86 and in 2009. The period of low prices then lasted for four years after 1985, and for only two years after the Lehman crisis. In this transition from a period of expensive oil (1980-85) to a period of cheap oil, global demand for oil (Chart 6) first declined considerably from 1980 and investment in oil exploration & production (Chart 7) dropped in line with prices in 1986 and remained at a low level for 10 years. So cycles of low oil prices and investment were long in the past.
