Dr. Fereidun Fesharaki, Founder and Chairman of FGE, projects that long-term oil prices will stabilize around $70 per barrel in real terms, a trend he expects to persist for the next two decades. He emphasizes that increasing carbon costs are contributing to the support of crude prices, and he does not foresee oil prices dropping below $70. “We won’t see $40, $50, or $30 oil anymore,” Fesharaki asserts. “When it reaches $70, OPEC will defend it. Prices will gradually decrease from $85-90, to $75-80, and eventually stabilize around $70.”
Short-Term Outlook: Crude Prices Headed Higher
In the short term, Dr. Fesharaki predicts crude prices will rise to $85-87 per barrel, driven by strong supply-demand fundamentals despite recent market fluctuations. He attributes the temporary dip in prices to negative market sentiment and a stock market crash, but maintains that the underlying demand remains robust for the rest of the year.
Supply-Demand Dynamics
Dr. Fesharaki points to tight supply-demand dynamics, with demand slightly weakened but still strong, particularly in OECD countries. He believes these fundamentals indicate that oil prices should move upwards, though he notes that next year may not be as favorable as this one.
Middle East Tensions and Oil Supply
While acknowledging ongoing tensions in the Middle East, Dr. Fesharaki does not expect them to disrupt oil supply. He highlights that even if geopolitical issues arise, OPEC+ has an excess capacity of six million barrels per day, which can compensate for any lost volumes. This significant buffer is why markets remain relatively indifferent to political problems in the region.
Impact of U.S. Presidential Election on Fossil Fuels
Discussing the potential impact of the upcoming U.S. presidential election on fossil fuels, Dr. Fesharaki notes that while former President Trump is favorable towards the oil industry, his return to office would not increase U.S. oil production, which he predicts will peak in about three years. However, Trump’s re-imposition of sanctions on Iran could affect the market. Dr. Fesharaki also mentions that under President Biden, Iran’s oil exports have surged, contributing to a stable oil price environment ahead of the U.S. election.
Russia-Ukraine Conflict and Oil Supply
Dr. Fesharaki dismisses concerns about supply disruptions from the ongoing Russia-Ukraine conflict, explaining that while Western countries have imposed sanctions on Russian oil, it has simply shifted to markets in India and China. He likens the global oil market to a large swimming pool, where moving one bucket of oil from one side to another does not reduce the overall volume. Consequently, global oil supply remains unaffected.
Gas Prices and Future Trends
Regarding gas prices, Dr. Fesharaki stands by his earlier prediction that prices will remain low in the long term, with a significant increase in supply expected around 2026-2027. He notes that while gas prices are currently strong, this will change when new gas comes online in the coming years.
Technology’s Role in Oil and Gas
Dr. Fesharaki acknowledges that advancements in technology, coupled with rising carbon costs, will make oil production more expensive for consumers. However, he points out that the demand for energy-intensive technologies, such as those required for artificial intelligence and data centers, will likely bolster future gas prices rather than oil prices.
China’s Role in Global Oil Demand
Dr. Fesharaki also touches on China’s oil demand, predicting that it will peak by 2027-2028 due to the rise of electric vehicles (EVs) and government intervention. He notes that while EV adoption is progressing rapidly in China, it is slower in the U.S. due to infrastructure challenges and high vehicle costs. Nonetheless, he expects oil demand to decline gradually, particularly in the gasoline and diesel markets.
Conclusion
In conclusion, Dr. Fesharaki believes that while oil prices may rise in the short term, the long-term trajectory points to stabilization around $70 per barrel. This forecast is based on supply-demand dynamics, technological advancements, and the impact of carbon costs on oil production.