The high crude price is slowing global demand, as seen in the drop in demand growth to 1 million barrels a day from 3 million barrels a day in 2004, Leo Drollas, deputy executive director of the London-based group, founded by former Saudi Oil Minister Sheikh Zaki Yamani, said. 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, Mr Drollas said during a CGES conference on Thursday in London.
Crude prices rose to more than $70 a barrel last year in New York as global demand grew, and because of threats to supplies in Iraq, Nigeria and Venezuela. Prices may not fall further until members of the Organisation of Petroleum Exporting Countries (OPEC) create enough excess capacity, to give markets more confidence that supply disruption wont occur, Mr Drollas said.
The average price of oil during the next 14 years probably will average about $40 a barrel as global demand increases by about 1.3% each year, less than the growth rate of 1.6% between 1986 and 2004, he said.
Crude fell 36 cents to $63.76 a barrel at 1:41 PM New York time on Friday, 16% higher than last year and 72% higher than the closing price on March 24, 2004. High prices and near-record production by OPEC have boosted crude oil stockpiles in the US to their highest levels in nearly seven years. Crude supplies are 338.6 million barrels, 11% higher than levels a year ago.
At current trends, the OPEC will have to create about 15 million more barrels of capacity to supply world markets by 2020, with 4 million used to support economic growth in domestic markets and 11 million devoted to export, said Mr Drollas, who received a doctorate in international trade economics from the London School of Economics and managed BP Plcs energy and economic modeling team before joining CGES in 1989.
Currently the 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 3,30,000 barrels per 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, Mr 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 estimates that non-OPEC oil production will grow this year by about 1 million barrels.