Gasoline prices are down 60 cents from record highs, and crude oil is at a six-month low.
Chevron has a huge oil find in the Gulf of Mexico, and tensions are easing in the Middle East.
Little debate exists in the near term among economists and analysts about whether oil and natural gas prices will continue to fall. For the longer term, however, experts are divided into camps of bears and bulls, with forecasts for crude oil prices ranging from $50 a barrel or below up to $100 or above.
Who’s right?
“Everyone’s forecast is wrong,” jokes Wachovia Corp. energy economist Jason Schenker, referring to the spotted track record of even the most respected prognosticators.
Yet the public should pay close attention to future energy prices, he said, whether they’re consumers on a household budget or corporations making strategic decisions on investment and production.
Here’s the case for continued low oil prices:
Demand for oil will slow down along with slowing economic growth in the U.S. and other nations.
Bolstered by a seven-year run-up in crude oil prices, energy firms are pouring more money into exploration. Production gains will boost supplies, keeping prices down.
Even if supplies grow tight, Saudi Arabia can increase production from its vast crude oil resources. If crude oil production stagnates, alternatives such as oil sands and oil shale have large potential.
Among the oil supply and pricing optimists is the U.S. Energy Information Administration.
Until late last year, the EIA’s price forecast for crude oil was $30 a barrel by 2030. The agency then revised the long-term price up to $50 in a 2006 report. Oil now is trading around $60 a barrel.
In a recent presentation to reporters at the Knight Center for Specialized Journalism in Maryland, EIA chief Guy Caruso said new discoveries and production will keep pace with rising consumption, keeping prices near $50.
Low prices seem absurd to analysts who subscribe to the theory of “peak oil” – the notion that world oil production will peak in coming years with a resulting gradual decline in supply and increase in price.
Advocates of the theory say long-term forecasts suggest permanently higher prices as oil producers scramble to find scarce supplies.
The EIA’s recent forecast change from $30 oil to $50 shows that the federal agency is “getting religion, though rather slower than I had hoped,” said Stephen Andrews, a Colorado energy analyst and peak-oil proponent.
“Yes, oil could absolutely hang out in the $50 range, even as early as later this year,” he said. “But flat-lining to 2030 is sheer nonsense, a delusional fantasy.”
Andrews and others make this case for tight oil supplies and rising prices:
Rising demand for oil in the U.S. and other developed countries, combined with rapid growth in developing countries, will quickly outstrip the ability of oil producers to increase production.
As supplies tighten from declining production, prices will become ever more susceptible to huge spikes from geopolitical, mechanical and weather disruptions.
Alternatives such as oil sands, oil shale and coal-derived fuels have either high capital costs, environmental issues or limited capacity to add significantly to oil supplies.
Economist Schenker takes a middle position in the debate over long-term prices.
“If we look as far ahead as 2025, I’d say $50 is a little too low, and $100 may be too high,” he said. “Then again, that’s 20 years away. Anything could happen.”
Staff writer Steve Raabe can be reached at 303-954-1948 or at sraabe@denverpost.com.
