Sinking oil prices will not drop much lower and will rebound to $80 per barrel in 2011 as a recovery in the world economy should begin by the end of next year, Deutsche Bank chief energy economist Adam Sieminski predicted on Wednesday.
Lower fuel prices should persist for a while, helping to boost the economy, Sieminski said at the Deloitte 2008 Oil & Gas Conference. “We’re actually pretty near the bottom of the oil cycle price wise. It could dip a little bit lower from where we are now. We might see $30. But it’s not going to stay there,” he said.
He forecast crude oil will average $47.50 a barrel in 2009, $55 in 2010 and then zoom to about $80 a barrel in 2011 because world economic growth, after falling to “very near zero” in 2009, will rebound to 2.6 percent in 2010 and stay positive thereafter for a while.
The global economic crisis has sliced more than $100 off the cost of a barrel of oil since July by tamping down consumption. Oil was trading around $45 on Wednesday. “By the end of next year, I think we should be out of the worst of this,” Sieminski said. Every penny drop in the price of gasoline provides a $1 billion stimulus to consumer spending in the United States, Sieminski said. Worldwide, a $20 per barrel drop in oil prices is worth $700 billion, equal to the recent US bailout package.
Although Deutsche Bank expects worldwide oil demand to fall 2% or 1.8 million barrels a day (bpd) next year, the world supply of oil and natural gas -- while not running out any time soon -- will become an issue again when the economy recovers, he said. Oil prices near $40 are going to delay frontier oil projects such as oilsands development in Canada and shale gas plays in the United States, and that will decrease supply, stabilize prices and in the end boost them. Oil prices at about $80 are needed to sustain investment, he said.
Russia, in particular, he noted, is seeing oil output fall after a period of rapid growth, and when recovery comes, the world will need that oil. “If GDP turns around, not having Russian production is going to be a big problem,” Sieminski said. World motor fuel demand is declining 1 million bpd at the same time new capacity is coming on line, Sieminski said. Some 2 million bpd of refining capacity is due for start-up next year, he said.
Long term, policy makers and industry leaders need to emphasize increasing energy efficiency, diversification of fuels and global standards for efficiency and greenhouse gas reduction. And carbon emissions must be priced, he said. “It’s critical to get a price on carbon. How we do that could be difficult, but we need to do that and do it in a hurry,” Sieminski said.
Some energy and environment solutions will require more government action, he said. After years of relying more on market-based models, it may be time to bring back realistic government planning and regulation, Sieminski said. “I don’t think we want to completely throw out the idea of deregulation because there’ve been many cases where it was very, very successful, but maybe in the short run, maybe, there are things that could be done,” he said. (Reuters)