Oil prices back up over $70, what about longer term prices?

A lot of oil market analysts and other pundits believe that crude prices will continue rising over the next year or so, as even very small increases in industrial demand will squeeze available supplies. A lot of other analysts, meanwhile, believe crude prices will fall as the world fails to emerge from recession, further squeezing refiners and oil service companies, and depressing investment in future production.

Nomura’s oil analysts however believe prices will remain where they are for the time being. In a note titled “Finding a balancing point in global oil markets” – “Our revised assumption of US$72/bbl for 2010 (from US$60/bbl) reflects a view that global oil markets will remain balanced over the course of the next 12 to 18 months at a price that the global economy can support and that the OPEC cartel is willing to defend. In fact, crude oil markets have looked roughly balanced since May evidenced, we believe, not by price but through the shape of the curve. The contango in the Brent crude curve has neither meaningfully narrowed nor widened over this period, suggesting to us that global inventories have remained at a constant level. In this period, oil prices have settled at a level that the global economy looks to be able to bear at around 6% of global GDP, in line with the long-run average energy intensity”.

Tags:  oil prices