To try to foresee the way oil markets will go experts and analysts alike use numerous techniques. But few if any manage to hit the nail on the head.
US shale revolution should keep Opec on its toes
Predictions about the oil market have some common characteristics: they are speculative; they are likely to be proven wrong; and they are unlikely to foresee seminal shifts in the market.
"As an industry, our ability to predict tectonic changes in the market has been fairly dismal," say analysts at the consultancy Energy Aspects.
Oil market forecasts by the International Energy Agency (IEA) and Opec are often characterised by an additional dynamic, as the two organisations have in the past shown little hesitation to disagree with one another.
This tendency towards contrarianism has made the most recent Opec and IEA monthly market reports all the more interesting. In the reports, traditionally released only a day apart, Opec led the way in highlighting the impact on shale oil.
For the first time - and not long after flatly denying it - the exporters organisation conceded shale oil is affecting its members, predicting rising production in North America is set to displace 300,000 barrel per day (bpd) of Opec oil in the market next year.
The IEA followed this up a day later by predicting shale oil would reduce the Opec demand by 200,000 bpd next year.
The agency has big expectations for US shale. The term refers to oil and gas extracted from shale rock formations using a technique known as hydraulic fracturing, or fracking. According to its latest mid-term outlook on the market, shale will allow US production to overtake that of Saudi Arabia, Opec's biggest producer, within five years. Between last year and 2018, shale oil will add 2.3 million bpd to US output, says the agency.
Estimates for shale oil outside the US have grown by 10 per cent since 2011 to 287 billion barrels, or 9 per cent of oil deposits, says the US Energy Information Administration (EIA). But numbers only ever tell part of the story, and Opec's blasé attitude to shale may well prove appropriate.
"This is not the first time new sources of oil are discovered - don't forget history," Ali Al Naimi, Saudi Arabia's oil minister, said at the biannual Opec meeting last month.
However, the Saudi Arabian billionaire Prince Alwaleed bin Talal disagreed with Mr Al Naimi, warning that the kingdom's oil-dependent economy was increasingly vulnerable to rising US energy production. In an open letter dated May 13 addressed to Mr Al Naimi and several other ministers, a link to which was published Sunday on Prince Alwaleed's Twitter account, he wrote: "We disagree with your Excellency on what you said, and we see that rising North American shale gas production is an inevitable threat."
While a current surge in US output is undeniable, many analysts are critical of the IEA's longer-term outlook. The boom in shale oil has so far concentrated on two formations, Bakken and Eagle Ford, and it is unclear if other reservoirs will be as prolific.
"You have certain success stories in the US, namely Bakken and to a lesser extent Eagle Ford, but these are the two most promising areas, and all the other areas are much less promising," says Alexander Pögl, an analyst at JBC Energy.
Even in the US, where vast amounts of data have accumulated from decades of conventional production, shale oil relies on drilling a large number of wells, which tend to deplete a lot quicker than wells pumping conventional crude.
A high rig count implies a limited knowledge of the reservoirs, which makes accurate forecasting of reserves difficult, as well keeping production costs high.
The technology behind fracking - horizontal drilling coupled with water and chemical injection to fracture the rock and release the hydrocarbon, is not new. But the shale boom only kicked off when high natural gas prices made shale production commercially viable.
As gas prices declined drastically, more rigs were shifted to oil production, highlighting the link between prices and shale production. Now, as in the future, output growth relies on a benign pricing environment.
"The primary driver for the whole effort is that the current oil price justifies risking large sums of capital on finding new plays and developing existing ones. In other words, US$100 oil provides both enough cash and enough incentive for people to take risks to find these marginal and expensive resources," says Raoul Leblanc, the managing director at IHS Energy Insight.
Even if oil prices remain high, the competing needs for rigs for oil and gas production provides "a self regulatory effect in itself", according to Johannes Gross, a JBC Energy analyst. Declining gas output will push prices up, in turn increasing the appeal of gas to producers.
The IEA's optimism on shale is also countered by those who point to the agency's prediction that the growth of non-Opec oil production will lead to a build up of spare capacity within the organisation. By 2015, Opec's idle capacity will stand at 7 million bpd, says the agency.
"Should spare capacity be as high as the IEA believes, it would undoubtedly put downward pressure on global oil prices, which would put a large chunk of high-cost production like tight oil at risk," says Energy Aspects in its assessment on shale. Tight oil is term for oil trapped in rock formations such as shale or sandstone.
The IEA sees US shale oil output growth tapering off within the five-year period to 2018. And it foresees Saudi Arabia reclaiming the primacy of production from the US in the longer term.
While in the short term US shale production will chip away at Opec's market share, many analysts are bullish on long-term prospects of the organisation.
"We don't see much of an issue for Opec's market position," says Mr Pögl.
Opec also benefits from the quality of its oil. Its heavy, sour crude is preferred by modern refineries, as it allows them to refine a greater variety of products. Even as the US is cutting back imports of oil from Africa, its refineries are increasing purchases of Middle Eastern heavy crude.
Outside the US, shale resources are some way off posing a threat to Opec. China, where its first shale well is about to be drilled, has huge shale resources, but the contrast between the world's biggest consumer of oil and the US is indicative of why the shale revolution is slow to get off the ground outside of North America. Apart from an excellent knowledge of its geology, the US also boasts an extensive oilfield service sector, which provides rigs and expertise.
Its capital markets make investment easy to come by and private ownership of land is a huge incentive to develop resources. Most of this does not exist in China, or elsewhere.
In Europe, environmental concerns are holding back shale production, with many governments refusing to even countenance the risk of water pollution and earthquakes that comes with the exploitation of shale rock. Even when governments are keen to tap shale gas resources, as is the case in the UK, legal uncertainties are still a barrier. "As an exploration and production company, you know what the technical preconditions are but you don't know what regulatory framework you need to expect once you start producing," says Mr Gross.
Given the uncertainties surrounding shale, Opec's demonstrative confidence looks plausible.
But while it may be able to fend off the shale threat to its market position, it had better not rest too easily. The next surprise could be just around the corner.