There is a considerable risk in oil price forecasting as the oil price outlook for 2015-16 will be clouded by geopolitical unrest in major oil-producing countries.

Oil prices are expected to be somewhat weaker in the last quarter of 2014 as some of the politically-related locked-in volumes will return to the market. After some time, however, investment cuts will weigh on oil supply growth and the market will become gradually tighter.

The North American oil boom, mainly driven by the shale/tight production in the US, is expected to grow at a healthy rate. The resurgence of North American oil production and a flexible output by OPEC’s de facto leader Saudi Arabia will continue to be vital to balance the market and offset the substantial supply disruption we have seen in the Middle East and North Africa region. Thus, the oil market looks well balanced in the near future, but the tide can easily turn. The nuclear talks between Iran and the West are slowly progressing, but it is still too early to say when we will see more Iranian barrels in the market. The risk of political supply disturbances has risen sharply this year due to growing unrest and risk of a division of Iraq and instability in Libya. The US and EU sanctions on Russia are not expected to have any significant short-term impact on oil supplies, but may put the start-up of much-needed new capacity expansion projects on hold.

In addition, galloping cost growth and flattening oil prices have squeezed oil companies’ margins. Consequently, new and more expensive oil projects have been put on hold and this will curb supply growth, but with an expected lag of two or three years.

Oil demand growth has shown clear signs of weakness, but it is expected to pick up again with economic growth. China will continue to be the main driver, but at a slower pace than before. Meanwhile, the oil demand growth outlook for both the Euro area and Russia looks more subdued as sanctions will weigh on the growth potential. In addition, Japan is expected to reduce its demand for oil as some nuclear power stations will restart. The focus on pollution and green energy is expected to increase before the UN climate summit in Paris next year, and efficiency standards and fuel switching are expected to have a growing impact on the oil market in the future.

How quickly these new environmental policies will be felt in the oil market depends on when technological breakthroughs lead to a big shift in the transportation sector. This currently accounts for about 60% of global oil consumption, and the use of energy in this sector has so far been more or less shielded from competition.