Deloitte: Sieminski forecasts $80/bbl oil in 2008

Dec. 24, 2007
Deutsche Bank AG Chief Energy Economist Adam Sieminski expects that light, sweet crude prices will average $80/bbl on the New York Mercantile Exchange in 2008.

Deutsche Bank AG Chief Energy Economist Adam Sieminski expects that light, sweet crude prices will average $80/bbl on the New York Mercantile Exchange in 2008.

Sieminski forecasts crude to likely average nearly $55/bbl this decade—nearly triple the 1990s average oil price.

“So far this decade, the oil price has averaged just above $41/bbl,” Sieminski told participants Dec. 12 at the annual Deloitte Oil & Gas conference in Houston.

Sieminski expects natural gas prices to average $7.75/MMbtu on NYMEX in 2008 and sees the gas price holding there, even if the average oil price declines into 2009 from the $80/bbl average forecast for 2008.

“Given the geopolitical problems still creating problems for oil (and some carryover of that into gas), the risk to the price outlook for both crude oil and natural gas is likely still more to the upside,” Sieminski said.

Crude oil markets appear to be inversely following the declining value of the US dollar and ignoring deteriorating oil fundamentals, Sieminski said. But a closer look at statistics shows a poor correlation between weekly changes in the dollar and oil prices, he said.

“This suggests that other factors are still important in setting the tone and direction of oil market prices,” Sieminski said. “As long as global gross domestic production growth stays near 3.5%, oil demand should grow by 1.5%.”

The long-term outlook still looks relatively bullish for oil demand, largely because one third of the world’s population is entering the middle class and wants the oil-consuming lifestyle associated with the middle class, he said.

Gas demand, refinery upgrades

Sieminski foresees the need for more gas-fired electric power generation, adding that gas also is expected to play a strong role in an anticipated US carbon cap and trade program. Carbon caps also will increase the demand for LNG.

“We expect a gas price recovery in 2008-09 as US supplies tighten, and the current storage overhang is trimmed,” Sieminski said.

Regarding refining, he said a trend toward lower spare refining capacity contributed to oil market strength during the last few years.

“The ability of the global refining system to handle heavy and high-sulfur crude streams has been significantly eroded by high demand and growth for light products (gasoline, jet fuel, diesel fuel) and rising environmental quality standards around the world,” Sieminski said. “This situation should change as new upgrading capacity comes on at refineries in the US and India in 2008-10 and in the Middle East in 2012-13.”