Oil could hit $100 by end of 2008: report
Global appetite may drive crude prices sharply higher: CIBC by Anne Howland
CanWest News Service
Thursday, July 19, 2007
CREDIT: (Photo: Getty File)
Global appetite for oil to drive price to
$100 US by 2008: CIBC. OTTAWA -- A growing appetite for oil in the developing world and a seemingly unquenchable thirst for it in most developed countries will push prices to US$80 a barrel this year, and to US$100 by the end of 2008, a new report predicts.
Triple-digit prices will be driven by major oil-producing countries in the developing world starting to consume more of their own declining supplies of oil, according to the report released Wednesday by CIBC World Markets. This would cut into their exports, possibly by as much as 2.5 million barrels a day between now and the end of the decade, the report added.
The situation could be worsened by a lack of new oil supplies and continuing global consumer demand, even in the face of rising prices that should act as a damper, said Jeff Rubin, chief economist and chief strategist at CIBC World Markets.
"It's far from obvious who will fill that supply gap," said Rubin. "What is obvious is that if that gap isn't filled, not only are triple-digit oil prices on the horizon, but even more problematic, are here to stay."
In April 2005, Rubin had predicted oil at US$100 a barrel by the end of the decade.
On Wednesday, crude oil prices pushed over US$75 a barrel after a U.S. government report showed supplies declined, although refinery activity picked up.
"All of a sudden, major oil-producing countries are becoming major oil-consuming countries," said Rubin, pointing to the price of gasoline in these countries as one of the reasons behind the trend. In Venezuela, Iran and other Middle Eastern countries, gasoline sells for 20 to 80 cents a gallon, a fraction of the world price, Rubin noted. That cheap, abundant gas is fuelling "some of the fastest growth in domestic demand anywhere in the world," he added.
"With gasoline selling at as little as a tenth of North American prices, there is no danger of ethanol displacing oil in any of these markets," Rubin said.
Martin King, commodities research analyst at Calgary-based FirstEnergy Capital Corp., agrees oil prices will be strong through this year and into next, but more likelyin the US$70 to US$80 range.
"I would not buy into triple-digit oil," said King, adding that countries such as Iran have been keeping domestic gas prices cheap and importing more oil. "That is a perfectly valid argument," he noted.
The prediction -- made partly by the oil industry -- that rising prices would dampen consumer demand has not proven out, Rubin said. Also, technological advances in the oilpatch have not helped increase supply, he added.
"With the exception of the Western European countries where carbon-conscious economies have successfully reduced oil demand, countries around the world have continued to consume oil at record rates," Rubin said. "This is the case not only for developing countries with massive energy appetites such as China, but also for oil-producing countries themselves."
Daily consumption in OPEC countries last year, together with demand in Mexico and Russia, exceeded 12 million barrels a day, or about 60-per-cent more than the level of Chinese consumption, the report said.
The U.S. oil industry warned Wednesday that conventional oil and gas supplies will not meet growing global demand and urged the American government to boost energy efficiency, encourage the production and use of alternative fuels, and establish an economy-wide cost for emitting carbon dioxide.
Demand for oil may be less price-elastic than previously thought, said Rubin. "An apparent acceleration in world oil demand this year in the face of a doubling in prices over the past three years has left International Energy Agency economists scratching their heads."
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