Gasoline could hit $7 a gallon in four years: CIBC
Crude predicted to top $200 by 2012 on tight supplies, pushing gas higher
By Moming Zhou, MarketWatch
SAN
FRANCISCO (MarketWatch) -- Surging crude prices, which could surpass
$200 a barrel in four years on tight supplies, could push gasoline
prices to as high as $7 a gallon, CIBC World Markets analysts said
Thursday.
Crude supplies are actually lower than some official estimates
indicate, while demand is unlikely to fall anytime soon, according to a
statement by analysts led by Jeff Rubin at CIBC, an investment bank.
They forecast that these tighter supplies and continued strong demand
will drive oil and gasoline prices to roughly double their current
levels by 2012.
"It is increasingly
clear that the outlook for oil supply signals a period of unprecedented
scarcity," said Rubin. "Despite the recent record jump in oil prices,
oil prices will continue to rise steadily over the next five years."
The
front-month crude contract slid Thursday to $116 a barrel, after
hitting a historic high of $119.90 a barrel Tuesday. Retail gas prices
averaged $3.56 a gallon Thursday, according to AAA, a new record high. Some analysts, however, said crude prices could turn lower. Standard
& Poor's predicted Thursday that crude prices could tumble to about
$90 a barrel by the end of this year with the U.S. economy struggling
in recession, though the range of that forecast is plus or minus $50.
Overstated estimates
CIBC based its prediction on an analysis of crude-production estimates
by the International Energy Agency, which the investment bank says has
overstated supplies because the agency counts natural-gas liquids as
part of the output. Stripping out natural-gas liquids, the global oil
market is much tighter, and oil production will hardly grow, they
added.
"While natural-gas
liquids only account for 10% of total supply, they account for
virtually all of the increase in petroleum-liquids production since
2005," said Rubin in a news release.
"Stripping out
natural-gas liquids, oil production has not grown for over two years,
which certainly goes a long way to explaining why oil prices have
doubled over that period," he added.
The portion of
natural-gas liquids in total oil production is increasing, from about
4% in the 1970s to an estimated 10% by 2012, CIBC said. Natural-gas
liquids are not a viable substitute for oil and cannot be economically
used as a basis for gasoline, diesel or jet fuel.
Latest data from the
Energy Information Administration, the statistical arm of U.S. Energy
Department, indicated domestic drilling of natural gas liquids was
increasing, while domestic oil production was falling.
Natural gas liquids
production averaged 2.4 million barrels a day so far this year, gaining
4% from the same period of the last year, while crude output fell 1.9%
from a year ago to 5.1 million barrels.
More natural gas comes with oil
Beyond methane which is what the home consumers burn, natural gas at
the well contains a range of readily liquefiable gases, which agencies
like the IEA have traditionally included in total oil supply.
IEA, a Paris-based
energy adviser to 27 developed countries, said in its April monthly
report that global oil production stood at 87.3 million barrels a day
in March.
While natural gas can occur on its own, much of the world's natural gas is found together with oil.
James Williams, an economist at WTRG Economics, an energy research
firm, agreed that natural gas liquids found together with crude oil
have been increasing, while "there isn't much growth in oil," he said.
"The lack of oil growth has been due to the lack of investment."
Accelerating depletion
of existing oil fields and a lack of investment in new fields have
resulted in a rising ratio of natural gas to oil in drilling in mature
oil fields.
Some oil producers have
been promising to invest more to increase production capacity. Abdalla
Salem el-Badri, secretary general of the Organization of Petroleum
Exporting Countries, said early this week the cartel is planning to
spend $160 billion over the next four years to boost oil production
capacity by 5 million barrels a day.
Demand in non-OECD countries to exceed OECD
While supplies are seen tight, there is little evidence to suggest that
there will be any reduction in oil demand, CIBC predicted, as demand
growth outside the Organization of Economic Cooperation and Development
offsets slowing demand in OECD countries.
Countries such as
Brazil, China and Russia have seen surging sales of automobiles, while
car sales in the United States and Europe have been declining or flat.
Gasoline, diesel and other transportation fuels account for about half
of the world's oil consumption.
CIBC predicted that by
2012, oil consumption in the rest of the world will exceed OECD. OECD
countries currently consume about 50 million barrels a day of crude, 13
million barrels a day more than non-OECD countries.
Demand from major oil
producers and exporters is also seen rising. Over the last three years,
oil consumption in OPEC members has grown an average of over 5% a year.
Combined demand from OPEC members, together with Russia and Mexico,
already stood at about 13 million barrels a day, the world's second
largest after the U.S.
"With production
faltering, soaring rates of domestic fuel consumption will soon
cannibalize export capacity," adding more pressure to the world energy
market, said Rubin in the report.
Fuel consumption in
some oil producing countries was partly boosted by extremely low
prices. Retail gasoline was only about 25 cents a gallon in Venezuela
and 60 cents a gallon in Saudi Arabia, Kuwait, and Iran.
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