Oil price expected to rise to US$80 in 2016

THE next big move in the price of oil will be up. For now, Organization of the Petroleum Exporting Countries (Opec) producers are flooding the market with cheap crude. But low-cost Opec producers will win the hydrocarbon price war because they can fight harder for longer. And when they win, the price of oil will rise.

Brent crude has fallen about 40 per cent over the last year to less than US$40 a barrel as Opec has sought to defend its market share by pumping record volumes of oil and driving profit out of higher-cost production. Shale oil drillers in America and offshore operators in areas such as the UK's North Sea are among the most vulnerable. Improving wellhead efficiency has softened the blows thus far. But these gains will be harder to repeat in 2016.

The International Energy Agency (IEA) expects shale oil production in the US to shrink by more than 600,000 barrels per day in 2016 if current low oil prices persist. At that rate, daily US shale production would soon fall below five million barrels per day. Lower prices will accelerate shutdowns in areas like the North Sea too. Energy consultancy Wood Mackenzie reckons that over a third of the area's 330 fields could be threatened by early closure if prices remain below US$85 per barrel for an extended period.