WASHINGTON -- The price of crude oil will turn upward again next year as U.S. output comes down, predicts energy expert Daniel Yergin.
The author of "The Prize," a Pulitzer Prize-winning history of the oil industry, Yergin serves as vice chairman of IHS, a U.S. think thank.
Edited excerpts from his recent interview with The Nikkei follow.
Q: The oil price has been dropping since last summer. What is happening?
A: Well, I think there are three things that brought us to these prices. First is this huge surge in supply, U.S. oil production up 80% since 2008. Four million barrels a day. There have only been three other times in history, going back to the 1930s, when you've seen this kind of sudden surge of supply come into the market. That's the first factor. But it didn't have an effect on the market because of disruptions.
The second thing that happened, starting in about August, was a sense that the world economy was weaker. And demand was weaker. The third thing which happened was [that] Libyan production quadrupled. That was the trigger for the collapse. Then the Gulf Arabs, led by Saudi Arabia, made the historic decision to resign their job, saying, "We're not the manager of the oil price anymore."
If they'd cut production in November, they would have just had to cut production again, and they were going to lose market share not only against U.S. shale, but [against] oil from all over the world, in particular Iran and Iraq.
Q: Will the U.S. shale oil industry become a swing producer?
A: In the first half of this year, U.S. oil production is actually going to continue to increase. It'll be about the middle of the year when you'll start to see it go down. And at that point the market will start to regain a little confidence.
Q: Your most recent book, "The Quest," mentioned that the advancement of technology stimulated the oil supply. One of the example is the U.S. shale. Do you think the U.S. shale revolution will continue?
A: That's a very good question. I think right now you're going to see producers cut back. They're going to focus on their most productive assets and cut back on the other things that they're doing. This is a very innovative industry, so there's going to be a lot of focus on continuing to improve productivity and decrease cost. I think it's going to go through a difficult period, but I think this revolution's going to continue. Just not in a straight upward line.
Q: For U.S. shale producers to stay in business, does the oil price need to be more than $50 a barrel?
A: Well, there are tiers. We thought that at $70 a barrel 80% of U.S. growth would continue. We think that up to $60, about half of the shale oil is economic. But what's going to happen is costs are going to come down.
We did a scenario two years ago called "Vortex" which showed oil going below $50 a barrel. And no one took it seriously.
Q: Do you have a specific range in mind for the oil price?
A: Maybe the average price for oil will be in the neighborhood of $50 this year. Then next year we think we'll certainly see an oil price that might be 10-30% higher.
Q: So we'll never see $100 oil again?
A: Well, I would never say never. One of the lessons in oil is never say never.
Remember the oil price went up on the emergence of ISIS, to $115. You have to be aware that turmoil in oil-producing areas could be very important.
Q: What impact might falling oil prices have on the international situation, especially for Russia and Iran?
A: I think falling oil prices push Russia more toward China because [the Russians] need the investment. Because of sanctions, Western financial markets are closed to Russia. For Russia it's a double problem: sanctions and a low oil price.
For Iran, of course this is really bad. Mr. [Hassan] Rouhani was elected president to improve the economy. It's a really difficult situation. That's why he would like to make an agreement with the United States even if the supreme leader keeps speaking out against it.
Q: Who wins from the fall?
A: I think Japan's a winner. I think China's pretty much a winner. The U.S. is a little bit of a winner. And the big losers, aside from the [oil] industry, are the countries that really base their economies on the export of oil.
Q: How should Japan make use of low oil prices?
A: This helps reinvigorate the Japanese economy. What does Mr. [Shinzo] Abe have, three arrows?
Q: Three arrows.
A: This is the fourth.