Low oil prices are here to stay as the US shale oil revolution goes global

The oil output increases are bound put downward pressure on prices, either by preventing price rises from the first-half 2015 levels, averaging some US$57 per barrel (Brent spot), or by pushing them back to these levels if an early upward reaction takes place.

Our optimistic scenario, which appears increasingly likely, sees a price of US$40 by 2035.

Global implications

The global spread of these revolutions and the ensuing price weakness that we envisage for the coming two decades will, on balance, provide a great advantage both to the oil industry and to the world economy at large.

Not surprisingly, public income from oil in producing nations may fall if they fail to compensate for falling prices by expanding output. We also suspect that the effects of the resource curse - where, paradoxically, nations with large resources don’t experience economic growth - will ease as prices decline.

The two revolutions will apparently cement and prolong the global oil dependence, with implications for climate policy. The efforts to develop renewables for the purpose of climate stabilisation will become more costly, requiring greater subsidies, in consequence of lower oil prices.

The abundance caused by the revolutions will lead to hard to fathom changes in international political relations. Much of the oil importers’ urge for political intervention and control will dissipate as access to oil becomes less urgent.

For instance, the heavy diplomatic and military presence of the United States in the Middle East is likely to be questioned when the country’s dependence on oil from the region is further reduced.

The growth and geographical diversification of supply would not only suppress prices, but would also promote competition among suppliers and make it more difficult for producers to use energy sales in pursuit of political ends.