Oil prices fall – oil peak Jarand Rystad warns against one narrative: – In 2024 the oil price collapse will come

The oil price suddenly fell two percent at 10:00 on Thursday morning to around 93 dollars per barrel. After an hour, parts of the fall have been recovered, and the oil price falls by around one per cent. This summer, oil prices were up to more than 120 dollars a barrel.

At the ONS energy fair in Stavanger this week, oil leaders gathered and discussed the future of the industry. The backdrop is the climate crisis, energy crisis and soaring oil and gas prices. The money flows into the companies’ accounts with high oil and gas prices the world has never seen before.

But Jarand Rystad, head of one of the world’s leading research agencies Rystad Energy, does not think the party will last long in the oil market. He claimed that in a panel debate with Petoro CEO Kristin Kragseth during NHST’s live broadcast on ONS.

– I think the oil price will stay around the levels you see now, or up and down between 100 and 130 dollars a barrel, this year and in 2023. But in 2024 the oil price collapse will come.

– Why the collapse?

– Because we are now mobilizing a lot of new capacity. But from the time you decide to drill a new well, six to 24 months pass. Now a lot is happening, but you won’t see the full effect of it until 2024, says Rystad.

Rystad envisages that the price of oil could fall all the way down to USD 20 a barrel in 2024.

– A collapse means below what is the cost of starting new projects and drilling new wells. That means 40 to 30 to 20 dollars. But you are not down there for long because then you stop and it also goes up again. There is a built-in dynamic in the market, says Rystad.

– Is it your view that the financial markets see this?

– No, on the oil side, it is not my impression that they see that downturn cycle, says Rystad.

– The narrative does not add up

In the oil industry, there is a widespread opinion that in the years following the oil crisis in 2014–2015, far too little was invested and that the supply of oil will be too low in the years to come. That notion is wrong, Rystad believes.

– But it is not the case that underinvestment from 2014 to 2020 has caused lasting wounds. It is a narrative that some people have. That narrative is not true if one goes into the details of productivity and deflation, says Rystad.

Rystad believes that some people are fooled by looking at the number of wells and overall investments in the industry.

– It is absolutely true that there have been far lower investments. There are two factors that make it not a big problem. One is that there has been severe deflation. All products and services within oil have fallen sharply in price. The second is that there has been a strong efficiency gain on new wells, says Rystad.

It is only in the last two years of war in Ukraine and the corona pandemic that too little has been invested, Rystad believes. He points out that although the number of new wells has fallen from 40,000 to 30,000, the throughput productivity of those wells has increased by 50 per cent.

– So you have more production now from fewer new wells than you had ten years ago. And the wells have dropped around 40 per cent in price, says Rystad.

– In the next decade, we actually have enough capacity to handle the oil you need.

Afraid of gas rationing

The situation is not the same in the gas market.

– I believe in a tight gas market in Europe for the next five years because we are going to get rid of Russian gas. Either Russia stops it, or we stop it if we manage to say no thanks. Italy and Germany are the two most important players here, says Rystad.

Rystad also fears that there may be rationing of gas during the winter.

– In the worst case, you can get rationing, says Rystad and points to a decrease in hydropower reserves in Europe as a result of drought.

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