Brent crude rebounding but $120 barrel days are over, says forecaster

The price of Brent crude oil has nowhere to go but up, but don't expect it to level out as high as it was during the Newfoundland offshore boom of a few years ago, says a forecaster who specializes in global oil prices.

• Newfoundland's fiscal situation remains tenuous as Brent crude falls below US$40
• Oil price forecaster declares crude at a 'turning point'

In its April 14 budget, the province's newly elected Liberal government blamed the previous administration for "failing to plan for the possible loss of revenue due to volatile oil prices."

Finance Minister Cathy Bennett said over the previous 12 years, the PCs had made long-term decisions based on the assumption that Brent would stay well above $100 a barrel.

Now with it sitting under $50 a barrel, the main revenue stream for the province has dried up, leaving the Liberals reeling from the consequences of a bad news budget.

Energy forecaster Rick Joswick of PIRA Group, a New York-based private global energy consulting firm, feels all signs point to a slow and steady rise in the price of Brent crude, the oil grade price point which is used for crude produced in the Newfoundland offshore.

"Our view is that we will see some gradual improvement in price over the next six or nine months. Maybe in the $50 level by end of the year, and then next year probably to the $60 type level," Joswick told CBC News from his office in New York City.

"But this could be choppy, we could see spikes of prices higher than that. You could have periods where people are worried about the global economy — but inevitably prices have to move higher in order to balance supply and demand, and that is starting right now."

Oil surpluses being tapped

Joswick says his confidence stems from the fact that the nearly 500 million barrels of global oil inventories that existed at the start of 2016 are finally starting to be utilized, as there isn't enough oil being produced that can meet increasing demand later this year and next.

Now, with the start of the second quarter of 2016, Joswick said demand is up even more, and as a result producers are drawing more from their inventories to keep up.

"As we get into the second half of this year, inventories are going to draw substantially, and then next year they're going to draw a lot," he said. 

"We could potentially eliminate the entire stock surplus next year."

Despite that trend, Joswick says Newfoundlanders and Labradorians shouldn't get their hopes up that Brent crude will again level out in the $120 to $130 range — like it was at the height of the province's recent oil boom. 

"We feel the new peak will be lower, in the absence of some sort of extraordinary supply outage. If there's a major war in the middle east or something it could spike very high"

He says a lower peak doesn't have to be a disappointment, as N.L. offshore producers can still operate and make money when oil is in $70 to $80 range — if they cut down on production costs to make up some of the difference.

Could be worse

Joswick says Newfoundland and Labrador is actually better off than some Brent crude-reliant economies, because of the current state of dollar exchange rates between the Canada and the United States.

• Read more articles by Geoff Bartlett

"Some countries in South America that rely on Brent crude for revenue have been absolutely devastated, but in Newfoundland and the Canadian offshore, the situation is a little different," he said.

"Brent crude is listed in U.S. dollars and yes, Canadian oil workers are getting the paid the same number of Canadian dollars," he said.

"But since a sale of US dollars gives you more Canadian dollars, it covers some of the price fall."