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By Robert Rapier on Apr 1, 2009 with no responses

Dueling Price Predictions

I have seen a flurry of recent predictions on oil and gas prices going forward, so I thought I would share some. Most of them support the thesis I recently put forward that we are setting the stage for another run on prices over the next 3-5 years. But with predictions all over the map, it’s no wonder that people are confused.

Miss $4 gas? It’s not coming back any time soon

“For retail prices, I expect we’ll see the national average for regular grade gasoline near $2.25 gallon by the May-June period, and about $2.25 to $2.35 a gallon for the July-August period,” said Brian Milne, refined fuels editor at DTN, an Omaha, Neb.-based commodity tracker.

Brace Yourself (and Your Portfolio) for an Oil Price Shock by 2012 Or Sooner

In his press conference last week, Obama said the country can’t afford to wait to tackle its oil addiction “until the next time that gas gets to $4 a gallon.” But noted consulting firm McKinsey & Co., Saudi oil minister Ali Al-Naimi, and “dean” of oil analysts Charles Maxwell of Weeden & Co. all say that an oil price shock that hits between 2010 and 2013 now appears all-but-inevitable.

So how high does Maxwell see prices going? By the “mid-teen years,” as he put it, the price of a barrel of oil could hit $200 to $300.

Oil May Fall to $28 a Barrel, SocGen Says: Technical Analysis

March 31 (Bloomberg) — Crude oil is set to drop to $28 a barrel in New York in the second quarter, according to technical analysis by Societe Generale SA.

Prices may rally until meeting resistance at $71 a barrel and then plunge to their lowest since 2003, Societe Generale analyst Stephanie Aymes said, using charts that make use of Elliott Wave theory.

Financier sees oil shock from credit crunch

“We are three, six, maybe nine months away from a price shock. We are not talking about three to five years away — it will be much sooner,” Simmons told Reuters in London.

“These prices now are dangerously low. The lower prices fall, the less oil will be produced and the greater the chance of an oil spike,” he said.

Venezuela’s Chavez says $80/bbl fair oil price

Energy Minister Rafael Ramirez in recent weeks said he expected oil prices to stabilize at $70 a barrel, describing that price as the minimum necessary to maintain investments in oil production.

Bernstein Says Oil Will Be $50 in 2009, $80 in 2010

March 31 (Bloomberg) — Crude oil is likely to be $50 in 2009 before falling supply causes prices to increase to $80 next year, Sanford C. Bernstein & Co. analysts said.

“The combination of reduced OPEC volumes and non-OPEC production shut-ins and declines will result in a larger than anticipated reduction in global supply,” Bernstein analysts including Ben Dell said in a report today. That “should help to tighten the oil market in late 2009 and early 2010.”

Oil price is too low to ‘support investment’

Qatar’s Deputy Premier and Energy Minister HE Abdullah bin Hamad Al-Attiyah said the global economic downturn, its impact on a drop in demand and a slide in the price of oil and gas “represent the main challenges facing the oil and gas industry.”

“The slide in oil price for a prolonged period while the cost of projects is not dropping fast enough, will (negatively) affect the volume of investments and threaten stability of the markets in the long-term,” al-Attiyah said.

“The absence of investments in the oil sector and not being optimistic about the future will create a gap between demand and supply,” he added. Al-Attiyah has said that a price above $70 was necessary to encourage investment, a view shared by several other OPEC members.

OPEC president eyes $75 oil this year

LUANDA (Reuters) – Oil prices could reach $75 per barrel in 2009 despite a the economic crisis, OPEC president Angola said on Monday, adding that compliance by the 12-member group with the agreed cuts remained at around 80 percent.

Personally, I think the Elliot Wave guy is way off the mark with his $28 prediction (and I don’t rate technical analyses very highly anyway relative to fundamental analyses). OPEC is showing a fairly high level of compliance with respect to the announced cuts. When members have visions of $100+ oil prices dancing in their heads, it is probably a bit easier to get them to comply while oil is bouncing around $50. Combine that with lots of project cancellations, and higher prices are in the cards.

I think the Bernstein analyst hit closest to the mark. OPEC is likely to overshoot with their cuts (just as they did last time) and not react until prices are much higher. By the time they do start to react, project cancellations will start to become a factor, and supply will once again be pinched. I would personally put the odds of higher prices in 3 years at 90%, with a better than 50% chance that they will be back over $100.