Oil Price
Re: Oil Price
October 13, 2016: Credit Suisse outlook for oil prices
Our new, dynamic US shale model says that $70/b WTI is too hot, and $50/b too cold
Fitting US shale in a global oil supply stack set against a conservative oil
demand forecast suggests that after 2017, $65/b Brent seems about right
■ Global oil supply stacks going out to 2025 consist primarily of our
proprietary shale model; the annually adjusted model of more than 4,000 of
the world's producing oil fields; our risked central-scenario of Opec
expansion; and a new cost-curve of the larger projects that are currently in
the 'pipeline' but which have not yet won a final investment decision.
■ Our demand forecast intersects the upper quartile of our team's cost-curve
of new, not yet FID-ed major oil projects that could be brought on-line by
2023-'25, see Figure 5 – if we feed $60/b WTI prices into our shale model.
■ We therefore lower the long-run part of our price forecast deck by
$5/b to Brent $65/b and WTI $62.50/b, which keeps intact the quality
adjusted transport differential between the two global benchmarks.
Simple as that sounds, this exercise builds on a global team effort to construct
the new new-project cost-curve and incorporates a deeply complex, dynamic
proprietary US shale model – addressing key investor debates.
■ To assess what WTI price is needed to stabilize, or grow shale oil
production our model incorporates known well inventories, type-curves and
EURs; and can flex all of these inputs as well as assumptions on half-cycle
costs, inflation, productivity, corporate-spend, and other key factors.
Note please that we are not changing the near-term part of our price outlook.
Our new, dynamic US shale model says that $70/b WTI is too hot, and $50/b too cold
Fitting US shale in a global oil supply stack set against a conservative oil
demand forecast suggests that after 2017, $65/b Brent seems about right
■ Global oil supply stacks going out to 2025 consist primarily of our
proprietary shale model; the annually adjusted model of more than 4,000 of
the world's producing oil fields; our risked central-scenario of Opec
expansion; and a new cost-curve of the larger projects that are currently in
the 'pipeline' but which have not yet won a final investment decision.
■ Our demand forecast intersects the upper quartile of our team's cost-curve
of new, not yet FID-ed major oil projects that could be brought on-line by
2023-'25, see Figure 5 – if we feed $60/b WTI prices into our shale model.
■ We therefore lower the long-run part of our price forecast deck by
$5/b to Brent $65/b and WTI $62.50/b, which keeps intact the quality
adjusted transport differential between the two global benchmarks.
Simple as that sounds, this exercise builds on a global team effort to construct
the new new-project cost-curve and incorporates a deeply complex, dynamic
proprietary US shale model – addressing key investor debates.
■ To assess what WTI price is needed to stabilize, or grow shale oil
production our model incorporates known well inventories, type-curves and
EURs; and can flex all of these inputs as well as assumptions on half-cycle
costs, inflation, productivity, corporate-spend, and other key factors.
Note please that we are not changing the near-term part of our price outlook.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group