Saturday, December 26, 2015

Current Crude Oil Price Forecasts (as of 12.26.2015) ...

During a recent discussion I suggested that the oil price forecast embedded in the Administration's most recent 10-year budget plan was too low and, thus, tended to overdramatize the extent of Alaska's current fiscal situation.  Others challenged that view, suggesting instead that the Administration's outlook was too optimistic.

While a number of public and private entities publish oil price forecasts I have gathered above the most recent set of long-range forecasts made by a selection of organizations that I generally look to when assessing the current outlook for prices.  With the exception of the IMF (International Monetary Fund), I believe that all of the forecasts are stated in nominal (inflation adjusted) dollars and, with the exception of the DOR (Alaska Department of Revenue) forecast, all are focused either entirely or in significant part on Brent or comparable, waterborne crudes.

Adjusting the IMF number for inflation would put it slightly above the World Bank projection.  The price for ANS generally trades at a slight ($1-$2) discount to Brent, although in recent days sometimes it has been higher than the reported Brent price.

When making the comment I had in mind particularly the DOR forecast price for 2020 ($71), which is about $10 (or roughly 12%) below the most recent forecasts by the IEA (International Energy Agency) and OPEC.  Extrapolating from estimates included as part of the DOR's Fall 2015 Revenue Sources Book the difference is worth about $300 million in additional annual revenue to Alaska, certainly not enough to close the immediate cash budget gap, but a not insignificant amount when viewing the process as putting a series of pieces in place.

While I appreciate that the World Bank and IMF (both global financing agencies) have projected lower prices for the same period, my experience has been that the EIA, IEA and OPEC tend to have a better handle on future price trends and thus, when there are differences, tend to give more weight to them.