Three different reports issued this week from three very different groups indicate that oil prices may rise significantly in 2010, fueled in part by the strong economic recovery of Asian nations – especially China.
The Energy Information Administration (EIA) of the Dept. of Energy is raising the forecast price of West Texas Intermediate (WTI) crude oil by $7 per barrel compared with its last short-term energy outlook, projecting average U.S. oil prices will reach about $77 per barrel this winter (October-March), then climbing to roughly $81 per barrel by December 2010, assuming U.S. and world economic conditions continue to improve.
“Sustained economic growth in China and other Asian countries is contributing to the beginnings of a rebound in world oil consumption, leading to revised expectations for world oil consumption upwards for the second consecutive month,” the EIA said in its report issued this week.
Consumption growth is expected to increase by 150,000 barrels per day (bbl/d) for both 2009 and 2010 compared with its last outlook, the agency added. The EIA forecast assumes U.S. real gross domestic product (GDP) will grow by 1.9% in 2010 and world oil-consumption-weighted real GDP by 2.6%.
“Although Organization for Economic Cooperation and Development (OECD) oil inventories as measured in days-of-supply remain high, optimism for a continued economic turnaround combined with the impact of Organization of the Petroleum Exporting Countries’ (OPEC) production cuts last year have driven oil prices higher,” EIA added, noting that said production cuts equaled a record 4.2 million barrels per day worth of capacity.
“However, if the economic recovery stalls and oil consumption does not rebound, oil prices could weaken given the high level of inventories,” the agency pointed out.
Nobuo Tanaka, executive director of the International Energy Agency (IEA), said in the group’s World Energy Outlook (WEO) 2009 annual publication that overall global energy use is predicted to start climbing next year, alongside higher petroleum consumption.
Though global energy use is set to fall this year, due in part to the ongoing financial collapse, the IEA predicts energy use will soon resume its upward trend if government policies don’t change. “In our ‘Reference Scenario,’ demand increases by 40% between now and 2030, reaching 16.8 billion tonnes of oil equivalent,” noted Tanaka in a speech given in London unveiling the group’s WEO-2009.
“Fossil fuels continue to dominate the energy mix, accounting for more than three-quarters of incremental demand. Non-OECD countries account for over 90% of this increase, with China and India alone accounting for over half,” Tanaka said. “In addition to increasing susceptibility to energy price spikes, [we] project a persistently high level of spending on oil and gas imports which would represent a substantial financial burden on import-dependent consumers, with China overtaking the U.S. around 2025 to become the world’s biggest spender on oil and [natural] gas imports.”
OPEC itself is also projecting an increase in oil prices, with U.S. dollar depreciation and rising equity prices contributing to this upward price trend along with counter-seasonal draws in US gasoline inventories.
“The world economy continues its recovery and is now forecast to grow by 2.9% in 2010 after a contraction of 1.1% in 2009,” OPEC noted in its November monthly oil market report. “Most of the growth is expected to come from the emerging Asian economies, with China is forecast to grow by 8% and 8.5% in 2009 and 2010 respectively. Fuelled by the unprecedented fiscal and monetary stimulus, OECD output is expected to show positive growth in the third quarter of 2009. Still, it remains to be seen when private consumption expenditures will pick up sufficiently as government support fades.”
All major OECD regions are projected to return to growth in 2010, OPEC said, with the U.S. forecast to grow at 1.4%, the Euro-zone at 0.5% and Japan at 1.1%. As a result, most the signs are aiming toward higher world oil demand growth in 2010, growing by 800,000 bbl/d in 2010 following a 1.4 million bbl/d contraction in 2009.
“The global economic recovery appears to be under way as all OECD countries are coming out of recession while growth is accelerating in emerging markets, especially in Asia,” OPEC stated. “As the global economy turns the corner, global oil demand is bottoming out and growth is set to resume. A cautious view on economic growth in 2010 would imply a moderate recovery in oil demand. Our forecast for global GDP sees a growth of 2.9% in 2010 with oil demand increasing 800,000 bbl/d.”