In a research report sent to clients this week, Barclays focuses on the rate of decline in existing fields and concludes:
Although all suppliers are locked in a battle for market share at the moment, before too long, tight oil will be urgently required. More than two-thirds of non-OPEC output producing today started up before 2010 and before the US tight oil boom. From 2010-2015, this pre-2010 base declined by around 3%/y. This rate is forecasted to accelerate when prices are low and when capex falls. With capex expected to fall by 20% globally in 2015 and a further 5-10% in 2016, the stage is set for a supply crunch. Shale needs to be additive to non-OPEC supply growth, not a drag on it. Eventually for prices, our models suggest the only way is up.
While the NYMEX strip price puts oil at somewhere near $65 a barrel in 2020, the Barclays base case sees oil at $85 a barrel, with a less optimistic scenario landing on $75 a barrel in 2020 and a more optimistic, high case result of $100 a barrel.
Of course, being cautious (pessimistic?), I note that even in the Barclays base case, oil sits at $63 and $65 a barrel for 2016 and 2017, respectively. That realization sufficiently stunts my optimism in the first paragraph. When it comes to oil prices and activity, I'm not prepared for the delayed gratification of better prices in 2020.
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