Oil is poised to average US$100 a barrel in 2011 for the first time, according to the latest round of quarterly commodity price forecasts.
Local experts are raising their 2011 oil price forecasts on the assumption that global unrest and a strengthening economic recovery will continue to provide support for crude prices over the balance of the year.
Benchmark U.S. crude came off 30-month highs on Tuesday, losing 13 cents US in New York to close at US$108.34. But despite the drop, oil prices have gained about 25% since the start of the year, and Ralph Glass, AJM Petroleum Consultants’ vice-president of operations, doesn’t expect them to come down soon.
“I always anticipated oil coming back to the $100 mark,” he said.
“Because of world events and even the disaster in Japan, the need for oil is just going to keep up there. I see far too many things to keep it up than throw it down.”
Oil companies use the forecasts, which are typically updated quarterly, to determine the value of their reserves and project future cash flows.
If it bears out, it would mark the highest average oil price on record.
Although oil prices previously spiked to $147 US in the summer of 2008, the average price that year came in around $99 US.
AJM originally predicted oil would return to the $100 US mark in 2016, but now expects it to stay in the triple digits past 2017.
FirstEnergy commodities analyst Martin King said his own $100 US forecast takes into account tighter supply and demand balances combined with a recognition that disruptions in places like Libya will take longer to sort out.
Reuters reported that Libyan rebels are prepared to sell oil cargoes, which would mark some of the first exports from the OPEC member since an uprising took hold last month.
“The fundamental stuff looks tighter, we’ve factored in a higher risk premium,” King said. “When all this unrest will settle down is anybody’s guess.”
Likewise Moody’s Investor’s Service increased its 2011 price assumptions by $10 US a barrel, but at $90 US it retains one of the most conservative outlooks.
“These figures represent baseline approximations —not forecasts —that help us evaluate risk when we analyze credit conditions for E&P (exploration and production) issuers,” said Terry Marshall, Moody’s senior vice-president.
In releasing the updated numbers, Moody’s increased its ranking for the entire integrated oil and gas sector to “positive” from “stable,” saying it expects improvements in financial performance, underpinned by higher oil prices and a gradual improvement in operating conditions, which will benefit downstream activities such as refining.
Although there is a broad agreement for bullish oil prices, there is no consensus for gas. Moody’s lowered its assumption to $4 US per million British thermal units while FirstEnergy increased its previous estimate by 10 cents to $4 US.
King said the cold winter means storage levels won’t be filled to the max by the end of the summer, which resulted in September price crashes in each of the past two years. He maintained that two extra weeks of cold weather this year could have whittled down reserves enough to put gas producers back on a positive footing.
AJM has maintained its intra-Alberta AECO gas price at $4.10 Cdn per gigajoule for 2011, but increased its long-term forecast to $6.50 Cdn by 2016, which Glass said also reflects the current increase in crude oil prices.
He agreed U.S. rig counts have to come down and storage levels have to fall further.
“It’s more longer-term,” he said, of the bullish outlook. “A lot of things have to happen first.”
Article provided via Financial Post
http://www.financialpost.com/news/used+triple+digit+prices/4567649/story.html
