Growing global demand for oil will push prices to $125 a barrel sometime next year and possibly to $180 by the end of the decade, according to a Barclays research report Thursday.
While domestic oil production has increased with the discovery of new ways to extract oil from shale and other tight formations, the decline in new production from existing fields internationally will continue to drive up prices, according to Barclays.
“Other factors are…destroying the simple case that sluggish economic performance plus shale oil must equal a rapidly loosening market,” Barclays wrote. “The solution to this apparent mystery is that while oil output is strong in the U.S., it has slumped elsewhere.”
Production is declining each year by close to four million barrels per day, while annual global demand is rising by more than one million barrels per day, even in the weak economic environment. Political tensions in the Middle East could disrupt supplies further, worsening the shortfall in the coming years.
This production gap will become more apparent in the third quarter of this year, according to Barclays. That will lead to higher oil prices and upward price pressure on exploration equipment, such as drilling rigs, and other services, as exploration companies chase production.
Barclays is less bullish on natural gas, emphasizing that it is not limited by the same supply constraints as oil, with production continuing to increase with the discovery of additional potential shale production fields around the world.
“Other global energy markets do not have the declining production constraints of oil, and prices are less robust,” Barclays wrote. “U.S. natural gas markets now price against coal in the domestic power market.”
The capital expenditures necessary in the quest for new oil will benefit investors in oil field service companies. “They will be the biggest beneficiaries of the rising capex needed to fund new supply,” Barclays wrote.
Barclays anticipates that services companies, such as Halliburton, National Oilwell Varco, Transocean, Oil State and Lufkin, will continue to flourish because of their international and offshore presence.