They did not see it coming and ever since the oil price started its precipitous crash from the $100 level, they have been reeling. The “they” includes investors, company directors and the resource-cursed governments. At first, they expected it to be a temporary and limited correction, settling at a new “more sustainable” level of around $70-80. As 2015 progressed, it was expected to be around $60, then $50-60, and now $40. Oil company executives predicted the prices would stabilise at every point on this downward path, and world leaders sang a similar tune. Putin declared the worst was over at over $40. Below $30, even for a short while, has been an even bigger surprise.
The explanations of the confounding of expectations have been many and various. The culprits have been variously claimed to be: the resilience of the US shale industry; the slow down in China; and the ending of the sanctions on Iran. Yet the curious thing about all of these is that they have been very predictable. Why would US shale costs not fall with the price? Why would China continue on a (probably fictitious) path of over 7% GDP growth per annum? And, didn’t everyone know the dates in the Iran-US deal?
The new normal: oil prices after the crash: Commentary available below (PDF):