16 Jan 2017

Oil prices expected to stay low

5:47 am on 16 January 2017

The price of oil to remain relatively low for this year and next, according to the US Department of Energy.

If the forecast proves correct, it could discourage the search for oil and gas in this country.

Offshore oil drilling platform - generic

Photo: 123RF

In its latest outlook, the department's Energy Information Agency said Brent Crude was expected to average $US53 a barrel in 2017 and $US56 a barrel in 2018.

That price is well ahead of the Brent crude at its trough in late 2015 of a little over $US30 a barrel.

It is still less than half of what it was three years ago.

The agency's forecast of continued low prices came despite a pledge to cut production by OPEC and some non OPEC countries to reduce supply and thereby drive up prices.

There was some scepticism this would stick. US production is expected to take up some of the slack, aided by unconventional production methods such as horizontal drilling and fracking.

Many countries including New Zealand have improved their energy efficiency in the last few years, meaning less energy is needed to produce the same amount of national wealth.

The low oil price is expected to reduce the interest in looking for oil in New Zealand.

Just one new oil and gas exploration permit was issued by the government last year, down from nine the previous year and 15 the year before that.

The reason is that oil industry experts say deep sea oil drilling would be too expensive to be justified at $US50 to $US60 a barrel.

Searching happening now was mainly seismic testing and was committed to years ago.