Could oil really fall to less than $10 per barrel?

09.05.2016 04:52
Katy Barnato |

As analysts vie to produce the most bearish oil price forecast, one pro has raised the game, telling CNBC that crude might fall below $10 per barrel within the next 10 years.

Increasingly efficient extraction techniques, improvements in clean energy production and battery storage will push crude prices to near-zero and place huge stress on energy and utility companies, the head of a London-based asset management firm said.

“I believe oil will follow a heavily volatile path around a declining trend-line, which will take it one day to sub-$10. I would be surprised if that was not to happen already within the next 10 years,” Francesco Filia, CEO of Fasanara Capital, told CNBC via email on Thursday.

TAN Trucking company owner Ted Nelson talks to J&C Custom Trucking parts manager Gary Bliss about the challenge of running an oil field company during a slowdown in North Dakota.

Andrew Cullen | Reuters
TAN Trucking company owner Ted Nelson talks to J&C Custom Trucking parts manager Gary Bliss about the challenge of running an oil field company during a slowdown in North Dakota.

With crude futures trading around $44-$45 per barrel, supply and demand for oil remains out of balance. WTI and Brent crude prices have largely rallied since mid-January, but remain far below the peaks above $100 per barrel reached before the price slump began in June 2014.

Filia said extraction productivity gains would force more crude on to the market, which is already saturated as a result of the U.S.-led revolution in shale gas, OPEC’s high level of output and increased production from Iraq and Iran.

“The most fundamental headwinds come, in my eyes, on the supply side, and are due to exponential technologies increasing the productivity of oil extraction, together with that of clean energy production. The cost of solar panels, for example, is decreasing at alarming speed (exponentially) and closing the gap on glowingly expensive fossil fuel extraction,” he told CNBC.

“Another example of technological progress affects the productivity of oil rigs, which went up four-fold in just a year, last year (leading to markets being surprised by increasing production and inventories in the face of declining rig count),” Filia added.

U.S. oil rig productivity — measured by the number of wells a rig can drill each month — has risen steadily since 2011. This is as a result of pad drill technology that means rigs can tap several wells from the same place more easily.

OIL 45.53
0.87 1.95% 39531
BRENT 46.02
0.65 1.43% 6818
NAT GAS 2.093
-0.008 -0.38% 1039
RBOB GAS 1.5213
0.0251 1.68% 1042

Filia’s long-term forecast for oil prices is far more bearish than some. The International Energy Agency expects crude to trade between $50 and $60 per barrel into the 2020s before edging higher, under its “low oil price scenario.”

Meanwhile, Deloitte forecast at the end of 2015 that WTI prices would steadily rise until 2022 and 2023, when they would average $80 per barrel.

Filia thought the biggest hit to oil prices would come from a “breakthrough” in the battery market, which would make it possible to store higher volumes of energy, and cheaper.

“We will wake up one day and find out that batteries have come to cost half the price and are able to store double the energy … Batteries are key, as today, you still can’t store efficiently and effectively the infinite energy (solar and wind) produced during the day, and spend it when it is most needed, at night. The day you can store it, and that day is close due to exponential technologies, oil is history,” he said.

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