Against the $65 per barrel oil price benchmark in Nigeria’s budget proposal, a survey by Reuters has shown that oil will rise to a higher average over of $86 a barrel next year, almost $3 up from last month’s poll on the expectation of declining inventories and quickening demand growth.
The third consecutive month of higher poll predictions was due to strong demand from Asia and more modest spare output capacity growth, analysts said.
“We anticipate that oil prices will remain robust in 2011 as demand from thirsty developing nations continues and inventories are tapped,” said Lloyds Bank Corporate Markets’ senior oil analyst Simon Cooke-Yarborough.
Most of the 33 analysts, banks and government agencies who contributed lifted their forecasts, with US prices expected to average USD 86.36 a barrel in 2011, up from USD 83.66 a barrel in November’s poll.
“As inventories decline alongside simultaneous demand growth, possible supply disruptions due to geopolitical instabilities remain prevalent, and Organisatioin of Petroleum Exporting Countries (OPEC) keeps targets steady it seems higher oil prices may be on the horizon for the first quarter of 2011 and beyond,” said Daniel Hwang, Gain Capital Forex.com’s senior market strategist.
Crude inventories in the world’s top oil consumer the United States fell 9.9 mn, the largest weekly drop since September 2002, the Energy Information Administration’s latest weekly report shows.
Demand will grow by 6 to 7 mn barrels per day over the next five years, according to Deutsche Bank’s chief energy economist Adam Sieminski, while non-OPEC supply will rise by only three to four mn barrels per day.
“Spare crude capacity in OPEC is likely to shrink in the absence of a strong ramp-up in Iraqi production, in our view. We believe these trends increase upside price risk over the medium term,” Sieminski wrote in a note.
US crude oil prices rose to a 26 month high of USD 90.76 a barrel on December 7, driven by dollar weakness and cold temperatures in the northern hemisphere. Prices have since traded in a range just below USD 90 a barrel.
Despite the increase in oil price forecasts, Ireland’s credit rating downgrade last week was a reminder of the potential issues still facing the euro zone, economic recovery and related oil demand.
Spain also paid higher premiums to place 2.4 bn euros of government bonds in mid-December, in the latest sign investors remain skittish about the country’s ability to manage its fiscal affairs.
Bullishness on further oil price increases could also find some temperance from expectations China will act to curb inflation by lifting interest rates.
“It may be the case as we move through next year (that) crude prices wane slightly from their current levels in response to factors such as tighter monetary policy in China and European fiscal austerity measures, which will start to bite in 2011,” Lloyd’s Cooke-Yarborough said.
While possible interest rate hikes in China, India and Russia could see prices correct in the coming weeks, LBBW analyst Frank Schallenberger expected that the strong global economic growth of around 4 per cent could push prices to new record highs next year.
