Here's a quick game to play - but you have to be honest. Seen this scenario analysis played out before. Based on this graphic from IEA OMR - probably would need to read it but we just play
https://www.iea.org/oilmarketreport/omrpublic/
View attachment 34883
Scenario #1: Producers (non-Opec so really the US & Can) have been hammered by price fall and the expected increase of roughly 1.5 Mmbopd does not happen due to low oil price and Capex cuts and marginal producers failing. We are looking at the "blue bar" which forecasts a 2Mmbopd delta between supply and demand (just as well otherwise we'd really be oversupply!).
Oil price (Brent) avg is $60 for 2015.
Scenario #2: Given that there has been no price recovery and during 2015 the price was volatile often dropping to $40 but overall average was still $50. Non-opec producers cut Capex further, and the oil price rout causes high cost producers to default on bank loans - setting off yet another banking crisis that jolts the mainstream economy and has opposite effect of what was expected of low oil prices (i.e. increased economic activity). Demand collapses by further 2Mmbopd (so total of 4Mmbopd from 2014 peak. Supply from non-Opec falls another 1mmbopd.
Scenario #3: Can this shit get any worse? Of course but then no point to the game. Opec blinks and cuts production as a group in Nov '15 having seen a year of $60 oil and further demand reduction. OPEC cuts by 2Mmbopd. This is now on top of the 2.5Mmbopd of "lost" non-OPEC production from supply destruction. Which of course now makes the market slightly undersupplied thus price quickly ascends back to $100 roughly in 2016. Shale growth rate has been stunted. Risk capital (for shale development) has been curtailed.
So all you do is give a probability to Scenario 1, 2 & 3 where effectively the avg is $60 (#1) the average will be $50 (#2) and the recovery is in 2016 and prices jump back to $100 (#3)
At 50% #1 and 30% #2 with 20% #3
averaged weighted price = (0.5*60)+(0.3*40) + (0.2*100) = 30+12 + 20 =
$62 for 2015!
Anyone spin a good story too?
(20min delay)