• Institutes and oil-producing countries expect the oil price to rise in 2017 from an average of USD 43 in 2016
• In 2016 institutions again provided more accurate price predictions than oil-producing nations
• Roland Berger experts predict an oil price of around USD 50 per barrel in the long term

Munich, March 1, 2017

Almost all oil-producing countries overestimated the oil prices for 2016. In that year, the three best forecasting oil-producing countries assumed an average oil price of USD 49 per barrel, but the actual price was USD 43. Forecasts are important for oil-producing countries because they base their national budgets on them. Noteworthy is the fact that the forecasts from the three major institutes namely the New York Mercantile Exchange (NYMEX), the US Energy Information Administration (EIA) and the Organization for Economic Co-operation and Development (OECD) are becoming more accurate. Since 2010 they have had the smallest margin of error, and since 2012 the accuracy of their forecasts has not been surpassed.

This is the conclusion of the 2017 study Oil price forecast: who predicts best? from consulting firm Roland Berger. Since 2007, the firm has analyzed the forecasts of the largest oil-producing countries and institutes. This year's edition also includes an analysis of market dynamics.

"Everyone, institutes and oil-producing countries, expects the oil price to rise in 2017, or that it will be higher than 2016 in any case," summarizes Arnoud van der Slot, Partner at Roland Berger Amsterdam. "The fact is that continued oversupply has kept the oil price permanently low since 2014. The cost development of American shale gas indicates an oil price of around USD 50 per barrel."

Institutions continue to outperform countries

Oil price forecasts for 2017 from the institutes IEA, NYMEX and EIA expect a lower rise in price (compared to the current price) than that expected by the oil-producing countries. Since 2009, institutional forecasts have been more accurate than those from oil-producing countries; before that time, it was the other way around. The top three most accurate oil-producing countries were within a 20 percent margin in their 2016 estimates; Iran and Kuwait were within a 1 percent margin.

David Frans, Partner at Roland Berger Amsterdam, explains. "It appears that the oil-producing countries have less influence on the oil price since the rise of shale gas in the US. As a result, their forecasts, compared to the institutes', have become less accurate."

In their 2017 budgets, oil-producing countries assumed an oil price of USD 42 to 72 per barrel (averaging USD 55 per barrel), whereas the institutes have predicted a price range of USD 41 to 55 per barrel (averaging USD 50 per barrel).

Changing market dynamics

According to David Frans, today's situation is similar to that in 1986. "The oil price was low back then, too, and was also the result of oversupply. Today we're seeing growing market shares for Russia and the Middle East, and declining costs for American shale gas. I'm seeing a trend where the oil price could stay relatively low for much longer. Last November's OPEC agreement to limit production so that the price could rise could very well be negated by the increased production of shale gas in the United States."

At the moment, the oil price is fluctuating around the USD 55 mark, in line with the forecasts from the most accurate oil-producing countries.

• Photos ktsimage / iStockphoto