A bearish prediction on oil, dropping into the $90 range, with a good range of arguments. Basically, the same recessionary factors that are hurting Vegas are helping to drive oil prices down. Good news for air travel.
Thanks in no small degree to a drop in global demand, oil prices, after breaching $147 per barrel, have tumbled more than 23 per cent to below $113. Barring a big hurricane in the Gulf of Mexico or a disruptive geopolitical event, oil prices appear to have peaked.
World oil consumption is now growing at a significantly lower pace than had been imagined a year ago.
In our judgment, the IEA’s forecasts for emerging markets will turn out to have been far too optimistic by year’s end and OPEC countries will again complain about the inability of oil importers to guarantee sufficient demand growth to warrant investments in expanded production capacity.
Complacent assumptions that lower prices will bring renewed demand growth ignore the reality of the demand response to extreme price shocks. The shocks stimulate the world to go beyond temporary reductions in discretionary consumption, and make large irreversible investments in energy saving technologies, permanently changing the structure and efficiency of transportation, industrial, commercial, and residential sector demand.
The old adage that “nothing cures high prices like high prices,” is as true today as in the 1970s. Those cures don’t only involve the supply side; the response from demand is as critical. We expect prices to stabilize at $90-100 per barrel but to still stimulate structural demand adjustments – we don’t foresee world demand growth exceeding 1mb/d per year for some time.