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

The price of Brent crude oilhasnowhere to go but up, butdon't expect it to levelout as high asit 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 governmentblamed 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, thePCs had made long-term decisions based on the assumption that Brent would stay well above $100 a barrel.

Nowwith it sitting under $50 a barrel, the main revenue stream for the provincehas dried up, leaving theLiberalsreeling from the consequencesofa bad news budget.

Energy forecaster Rick Joswick of PIRAGroup, 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 inthe 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," Joswicktold 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 economybut inevitably prices have to move higher in order to balance supply and demand,and that is starting right now."

Oil surpluses being tapped

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

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

"As we get into the second halfof 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 saysNewfoundlanders and Labradorians shouldn't get their hopes up thatBrent crude will againleveloutin the $120 to$130 rangelike 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, asN.L.offshore producers can still operate and make money whenoil is in $70 to $80rangeif theycut 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."