The current high crude price is slowing global demand, as seen in the fall in demand growth to 1 million barrels a day from 3 million barrels a day in 2004, said Leo Drollas, deputy executive director of the London-based group, founded by former Saudi Oil Minister Sheikh Zaki Yamani.
The price of Brent crude will be around the $62-63 level until about May or June and then there will be a gentle decline as inventories continue to build, Drollas said during at a CGES conference yesterday in London.
Crude prices rose to more than $70 a barrel last year in New York as global demand grew and there were threats to supplies in Iraq, Nigeria and Venezuela. Prices may not fall further until members of the Organization of Petroleum Exporting Countries create enough excess capacity to give markets more confidence that supply disruption wont occur, he said.
The average price of oil during the next 14 years will likely average about $40 a barrel as global demand increases by about 1.3 percent each year, less than the growth rate of 1.6 percent between 1986 and 2004, he said.
At current trends, about 15 million more barrels of capacity will be needed to supply world markets by 2020, with 4 million used to support economic growth in domestic markets and 11 million devoted to export, said Drollas, who received a doctorate in international trade economics from the London School of Economics.
More OPEC Capacity
Current OPEC capacity is about 32 million barrels a day, after Saudi Arabia this week announced the opening of its Haradh production facility, which will produce 330,000 barrels a day. The worlds largest oil exporter plans to add a further 1.2 million barrels a day by 2009, according to Saudi Arabian Oil Minister Ali al-Naimi.
The expansion to cover demand in 2020 will cost about $100 billion, Drollas said. There is no real worry about these countries ability to put in the capacity, but the question is political will and the stability of these countries.The high prices are leading to more investment by international oil companies that will add to production growth in non-OPEC areas such as Russia and West Africa. CGES estimatesthat non-OPEC oil production will grow this year by about 1 million barrels.
Exxon and Chevron
Exxon Mobil Corp., the worlds largest oil company, will boost annual spending on exploration and production by more than 20 percent to $15 billion and said earlier this month it would maintain that investment level until 2010. Chevron Corp. in December announced plans to increase its 2006 capital spending by 35 percent to $14.8 billion.
Other analysts have a less optimistic view of non-OPEC production because current high taxes on profits in Russia make increasing investments of limited value said Craig Pennington, senior energy analyst with Schroders Plc in London, in a note to clients.
Russian producers OAO Sibneft, OAO Lukoil and OAO TNK-BP have lowered growth projections, and that will lead to a dramatic slowdown in volume growth, Pennington said in a note to clients published March 20. This means contribution of Russia growth to non-OPEC volumes is substantial lower.
Pennington cut expectations of Russian production by 300,000 barrels a day this year, causing Schroders to increase its estimate of the average 2006 Brent price by $5 to $59 a barrel. The price of oil in New York will average $61 a barrel this year, he said.
Bank of America and Societe Generale SA also raised their 2006 oil price estimates in the past month. Bank of America expects oil to fetch $58 a barrel this year in New York, up 5.5 percent from its previous estimate.