BMI Research has predicted that the price of Brent crude oil will average $75 per barrel next year, according to the latest forecast even though this prediction may vary from that of Bloomberg which is more conservative saying the price range may drop to around $64 per barrel next year.
In contrast, BMI projects that it will climb even higher in 2020, averaging $78 per barrel before plateauing at $80 per barrel in 2021 and 2022. Whatever the true price for next year will be, most analysts concur that the time for cheap oil is over when one recalls that it was $45 last July but had artificially dipped to $30 two years ago.
In summer 2014, it shot up to $115. Vagaries in price movements exist, probably caused by OPEC maneuverers over global output. If they succeed in restraining members' total production, the price will shoot up. On the other hand, this can be counterbalanced by increased production from the US shale oil sector. Shale fracking drillers are back at work fast because the price is now high enough to justify the investment. They can quickly speed up production and the good news is that the US government's energy analysts have moved up their forecast of output by four times in the past few months.
It could reach 11 million barrels a day, exceeding the annual output of Saudi Arabia. Going through some facts, we observe how OPEC's oil output fell briefly last month mainly caused by declining Angolan exports, Libyan outages and a further slide in Venezuelan output. This unannounced reduction of about 90,000 bpd in February is in harmony with an overall strategy to reduce surplus stocks to maintain stable global prices.
Reuter reports that OPEC, which is a cartel of 14 oil-producing countries accounting for 40 per cent of global output, is trying to reduce output by about 1.2 million bpd as part of a deal with Russia and other non-OPEC producers in a plan which it aims to continue until the end of 2018.
Due to such measures it comes as no surprise that oil price hit $71 a barrel this year for the first time since 2014. So far, there has been no imminent rise in the price of petrol/diesel in Malta but recently in the UK, the price of unleaded petrol has risen by nearly 5p since last November to 121.27p per litre, while diesel prices have jumped 3p to 123.97p over the same period. UK is making noises to intensify a drilling programme in the Scottish waters encouraged by the rise in oil price.
Such talk excites those who want the Scots to try again for independence and if successful take control of oil revenue. Ideally, the extra millions can be saved for posterity in an investment fund, as Norway has done. So if nationalisation happens this could bring in roughly an extra £1 billion a year to the Scottish exchequer.
In Malta last year, a National Oil Company was incorporated to help promote upstream business, so, can we hope that behind closed doors there are plans to kick start the drive for exploration? Another harbinger is the persistent rise in the price of oil.
As an island, we still rely 100 per cent on fossil fuel for electricity generation albeit now on LNG given that our dependence on renewable energy is under seven per cent and it does not look as if it is going to triple in the short term. Therefore, the global oil price is an important factor as we are an importing country. Rising global demand and falling OPEC supply may yet increase more pressure on the oil price. Martijn Rats of Morgan Stanley says that to keep the market roughly in balance with shale-producers in the US planning to raise output from 5.8m barrels a day (b/d) to 10m b/d over the next 12 months.
This may have a stabilising effect on the international oil price as Brent crude hovers above $70 a barrel, and when OPEC and the other petro-states meet again, they all expect oil prices to continue to increase. This means that, as stated earlier, in the short term one expects oil prices to gradually rise to the next range of $80 to $90 a barrel making a fresh impetus for Malta's political strategists to contemplate new exploration initiatives.
Late last year, a scoop by the Times of Malta (ToM) announced that the government appears to be trying to start a new push for oil and gas exploration in Maltese waters after a hiatus of six years. ToM reported that the official journal of the European Union issued a notice says that Blocks 1, 2 and 3 of Area 3, an area of 6,000 square kilometres north of Malta, are now available "for authorisation on a permanent basis under either an exploration licence or an exploration and production licence".
The National Oil Company is expected to announce a 'licensing round' to attract consortia for the three blocks on offer. History has taught us a lesson on upstream initiatives that we need to continue political negotiations with neighbouring countries to resolve any delineation disputes regarding our Continental shelf. The ideal solution would be to start looking for investors to search for gas in our offshore waters emulating the success of Cyprus, Egypt, Libya, Tunisia and Algiers. Some may say this is a pipe dream. Realists might assert that provided sufficient capital is invested in exploration this may in the near future enable us to export our own hydrocarbons to Europe via a submarine pipe connected to Sicily.
Will our political leaders stop and reflect that we have no current exploration activity planned for the near future? This may be an unpalatable story since despite a lack of discoveries in both oil and gas in six decades, we have been repeatedly reminded by top geologists that the prospect for discoveries in the Maltese continental shelf is bright and that we should not shy away from starting an intensive exploration programme. Historically, Malta has used heavy fuel oil and gas oil for power generation as it has no indigenous supply of fossil fuel, so electricity generation is wholly dependent on imported fuels.
One augurs that our search for hydrocarbons will be rekindled now that the price of oil is heading upwards - perhaps we can allocate part of the funds in our emergent Passports Sovereign fund for this exciting albeit risky adventure. This means putting our money where our mouth is.
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Mr Mangion is a senior partner of PKF, an audit and consultancy firm.