Publications: The Petroleum Economics Monthly

Must Oil Fall to $30 per Barrel? (May 2016)


The pundits do not project oil to fall to $30. Goldman Sachs sees a market rebalancing. Merrill Lynch predicts $52 per barrel by year’s end. The average projection for then by the twenty-five forecasters surveyed the week of July 13 by Consensus Economics was $49.46 per barrel for Brent and $48.73 for WTI. More recently, projections have been lowered but just a little.


From our perspective, however, there are clear indications that oil must fall, possibly below $30. Among the key indicators is the share price of the BP Prudhoe Bay Royalty Trust (BPT). Share prices have been early signalers of crude oil price direction for more than three decades. The BPT is sending out very worrisome signs. Investors buying trust units seem to reject the consensus view. A crude oil price forecast consistent with BPT shares trading at $16, the end of July share price, would see crude prices dropping to $30 in the fourth quarter of 2016 before rising to around $50 by the end of 2019.