This is the Normal Oil Price

The normal oil price is $97 per barrel.

That’s what Skandinaviska Enskilda Banken AB (SEB) Chief Commodity Analyst Bjarne Schieldrop said in a new SEB report, which was sent to Rigzone on Tuesday.

“Normal in the eyes of most market participants today is $60 per barrel, but this perception is probably largely based on the recent experience of the market,” Schieldrop stated in the report.

“The average Brent crude oil price from 2015-2019 was $58.5 per barrel, but that was a period of booming non-OPEC supply, mostly shale oil,” he added.

“But booming shale oil supply is now increasingly coming towards an end. Looking more broadly at the last 20 years the nominal average price was $75 per barrel, but in inflation adjusted terms it was actually $97 per barrel,” he continued.

In the report, Schieldrop defined 2015-2019 as “a very special period with booming non-OPEC supply whenever the WTI price moved above $45 per barrel”.

The SEB analyst outlined in the report that we should think of the “shale oil boom years” as the “price depression period”.

“Also, adjusting it for inflation, the real average price during this period was actually $72.2 per barrel and not $58.5 per barrel,” he said in the report.

“If we, however, zoom out a little and look at the last 20 years then we get a nominal average of $75 per barrel. The real, average inflation adjusted price over the past 20 years is however $97 per barrel,” he added, highlighting that the Dated Brent crude oil price closed at $96 per barrel on September 18.

“Worth noting, however, is that for such inflation adjustment to make sense then the assumed cost of production should actually rise along with inflation and as such create a ‘rising floor price’ to oil based on rising real costs,” he continued.

Schieldrop noted in the report that if costs in real terms instead are falling due to productivity improvements, then such inflation adjusted prices will have limited bearing for future prices.

“What matters more specifically is the development of real production costs for non-OPEC producers and the possibility to ramp up such production,” he said.

“Environmental politics in OECD countries is of course a clear limiting factor for non-OPEC oil production growth and possibly a much more important factor than the production cost itself,” he added.

In a separate report sent to Rigzone on Monday, Schieldrop said we are highly likely to see Dated Brent moving above $100 per barrel.

“It is now less than $5 per barrel away from that level and only noise is needed to bring it above,” Schieldrop stated in that report.

In another report sent to Rigzone on Tuesday, Standard Chartered projected that the ICE Brent crude oil price will average $88 per barrel in the third quarter of this year and $93 per barrel in the fourth quarter.

In a report sent to Rigzone last week, analysts at BofA Global Research said Brent prices could spike past $100 per barrel before year end “should OPEC+ maintain cuts against Asia’s positive demand backdrop”.

The U.S. Energy Information Administration’s latest short term energy outlook, which was released earlier this month, projected that Brent spot prices will average $84.46 per barrel this year.

In its September oil market report, the International Energy Agency noted that oil prices traded in a narrow range throughout August, “with North Sea Dated hovering around $85 per barrel and price volatility at multi-year lows”.

“Prices moved higher by end-month as fundamentals came to the fore once again and breached $90 per barrel for the first time in 10 months after Saudi Arabia and Russia extended voluntary production cuts until the end of 2023,” the IEA added in the oil market report.

To contact the author, email andreas.exarheas@rigzone.com