Tuesday, April 11, 2006
Oil price fall predicted
Globe and Mail Update
Ben Dell, an energy analyst at Sanford C. Bernstein & Co., is a long-term oil bull but his short-term outlook is decidedly bearish, warning investors that the price of crude could fall significantly in the next year and a half.
In a report Tuesday, Mr. Dell said a big reason underpinning his outlook is an expected rush of new oil production from the United States, Britain and Canada, areas considered by global industry players to be mature regions with little to offer the market in terms of fresh output.
But while the United States and Britain have reported nothing but production declines in recent years, new projects such as BP PLC's Thunder Horse in the Gulf of Mexico and Calgary-based Nexen Inc.'s Buzzard in the North Sea means significant output is coming later year, Mr. Dell said.
That additional production could help ease the supply crunch of recent years, especially as production capacity increases from countries such as Saudi Arabia, Angola and Russia also emerge.
"It is often assumed supply from mature areas cannot grow," Mr. Dell said in the report but he noted that frenzied levels of drilling are producing results and high prices have encouraged companies to chase smaller projects that would have otherwise been left to sit.
"The cushion of spare capacity should grow meaningfully through 2006 and 2007," he said, "reducing the risks associated with supply disruption and placing further downward pressure on crude prices."
The benchmark price of oil on the New York Mercantile Exchange has been steady around the $60 (U.S.) a barrel level in recent weeks but Mr. Dell said the price could average $45 a barrel in 2007, a steep 25-per-cent decline.
He said analysts will start cutting their profit estimates for energy companies, which he said has historically led to poor performances on the stock market. He advised general caution but didn't provide specific recommendations.
However, in the longer term, he said lower prices next year will eventually mean higher prices, as marginal projects are cut back. He prices oil at about $60 a barrel in 2010.
Dave Ebner
Ben Dell, an energy analyst at Sanford C. Bernstein & Co., is a long-term oil bull but his short-term outlook is decidedly bearish, warning investors that the price of crude could fall significantly in the next year and a half.
In a report Tuesday, Mr. Dell said a big reason underpinning his outlook is an expected rush of new oil production from the United States, Britain and Canada, areas considered by global industry players to be mature regions with little to offer the market in terms of fresh output.
But while the United States and Britain have reported nothing but production declines in recent years, new projects such as BP PLC's Thunder Horse in the Gulf of Mexico and Calgary-based Nexen Inc.'s Buzzard in the North Sea means significant output is coming later year, Mr. Dell said.
That additional production could help ease the supply crunch of recent years, especially as production capacity increases from countries such as Saudi Arabia, Angola and Russia also emerge.
"It is often assumed supply from mature areas cannot grow," Mr. Dell said in the report but he noted that frenzied levels of drilling are producing results and high prices have encouraged companies to chase smaller projects that would have otherwise been left to sit.
"The cushion of spare capacity should grow meaningfully through 2006 and 2007," he said, "reducing the risks associated with supply disruption and placing further downward pressure on crude prices."
The benchmark price of oil on the New York Mercantile Exchange has been steady around the $60 (U.S.) a barrel level in recent weeks but Mr. Dell said the price could average $45 a barrel in 2007, a steep 25-per-cent decline.
He said analysts will start cutting their profit estimates for energy companies, which he said has historically led to poor performances on the stock market. He advised general caution but didn't provide specific recommendations.
However, in the longer term, he said lower prices next year will eventually mean higher prices, as marginal projects are cut back. He prices oil at about $60 a barrel in 2010.
Dave Ebner
# posted by Gene @ 3:58 AM 
