Jim Stott
Special Correspondent
CALGARY, May 3 -- Oil prices have established a new and higher plateau, driven by increasing world demand, several analysts told a Canadian Energy Research Institute (CERI) conference May 2 in Calgary.
Paul Horsnell, head of energy research at Barclays Capital Inc., London, said oil prices may ease for a few months because of high inventories but prices are unlikely to drop below $40/bbl. Horsnell said prices are more likely to be $40/bbl than $20/bbl.
Horsnell also warned that declining US refinery capacity is a major issue. He said that no one wants to build refineries because they are unprofitable, which could lead to a crisis situation within 5 years. Continuing demand in countries such as China and India will drive oil prices, he noted.
Horsnell said that the Organization of Petroleum Exporting Countries is in a strong position to protect oil prices and the downside would be $40/bbl.
Fereidun Fesharaki, president of FACTS Inc., Honolulu, said oil prices have reached s new plateau, moving from the ground floor to the second floor. The former energy advisor to the prime minister of Iran said crude now has a floor price in the $35-40/bbl range, compared to a previous level of $20/bbl.
Fesharaki said oil prices are likely to stay high, barring some cataclysmic event, such as a meteor falling onto industrialized China.
Fesharaki said a likely scenario would see oil prices rising to $80/bbl by 2008 and dropping to $60/bbl by 2012 as high costs begin to impact on demand.
Michael Lynch, president of Strategic Energy & Economic Research, presented a more contrarian and bearish oil price outlook. Lynch said prices in the $40/bbl range indicate what consumers are willing to pay now, but not necessarily a forecast.
Lynch said real prices are cyclical and market fundamentals win in the long term. He also said that OPEC would cut their production quotas, if needed, to prop up prices.
Contact Jim Stott at [email protected].
