Business | Oil & Gas
Futures show $80 for oil on horizon
Oil contracts for delivery far in the future have held stubbornly above $80 a barrel in recent weeks, indicating the long-term trend towards higher prices remains intact, analysts said on Friday.
- Reuters
- Published: 23:50 November 16, 2008
London: Oil contracts for delivery far in the future have held stubbornly above $80 a barrel in recent weeks, indicating the long-term trend towards higher prices remains intact, analysts said on Friday.
Oil's rapid collapse from a record above $147 a barrel in July to below $55 a barrel last week has offered some relief to consumers facing tight credit conditions and economic insecurity.
But lower prices are likely to be a short-lived balm, as the slow growth of global oil production and rising costs should see crude prices soar again when the economy begins to recover.
"The back end of the oil futures curve is reflecting the long-term trend, not the short-term cycle," said BNP Paribas analyst Harry Tchilinguirian.
"Long-dated prices have fallen, but much less faster than prompt prices. They represent the marginal cost of new supply, and reflect expensive developments like deep water projects off the coast of Brazil and oil sands in Canada but also higher costs of project finance as a result of the credit crisis."
Oil contracts for delivery three years out initially fell in step with near-month crude after it turned south in mid-July in response to the global slowdown.
However, the pace of decline for contracts three years forward slowed markedly in October and has held steady above $80 a barrel in November.
"What we're seeing is part of the longer-term bullish story for oil," said Societe Generale analyst Mike Wittner. Helen Henton, head of commodities at Standard Chartered said the bank was predicting an average oil price of $80 a barrel for 2010, compared with $60 a barrel in 2009.
Most investment banks predict the prospects for the global economy should turn for the better from around 2010.
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