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Oil's Most Accurate See Second-Highest Price in 2011 (Update2)
2011-01-03 14:58:17.400 GMT
(Updates to add comment in sixth paragraph, today's price
in 14th.)
By Grant Smith and Mark Shenk
Jan. 3 (Bloomberg) -- Oil demand increasing at almost twice
the pace of supply is spurring the most-accurate forecasters to
predict the second-highest price on record in 2011.
Sanford C. Bernstein & Co., whose estimate last January was
within 1 percent of 2010's mean price of $79.60 a barrel, says
crude will average $90 this year. Natixis Bleichroeder Inc.,
which tied with Bernstein, sees $100 a barrel, 26 percent higher
than in 2010. Global oil use will increase 1.7 percent to a
record 87.8 million barrels a day this year, and output will
rise 0.9 percent, according to the U.S. Energy Department.
While economic growth in China, the world's biggest energy
consumer, will slow to 9 percent this year from 10 percent, that
would still be three times the rate in the U.S. and six times
Europe's, according to the median estimate in Bloomberg surveys
of economists. As oil prices rise, spare production capacity may
drop the most since 2003 as exporters including the 12 members
of OPEC boost supply, according to Bernstein.
"We expect OPEC to have to increase their production,
causing a reduction in spare capacity, which to us is
increasingly becoming a more important determinant of oil
prices," said Oswald Clint, who replaced Neil McMahon in August
as Bernstein's head oil analyst in London. "Since China became
a more important part of the demand pie, the spare-capacity
factor has become more important."
Highest Since 2008
Crude futures on the New York Mercantile Exchange will
average $87 in 2011, based on the median of 34 analyst estimates
compiled by Bloomberg. That would be the highest since the
record $99.75 reached in 2008 and 40 percent more than 2009's
average of $62.09.
Oil prices will average $93 a barrel this year and are
"very likely" to climb above $100, Jason Schenker, president
of Prestige Economics in Austin, Texas, one of the five most-
accurate forecasters in 2010, said today in an interview with
Deirdre Bolton on Bloomberg Television's "InsideTrack."
Exxon Mobil Corp., BP Plc and Royal Dutch Shell Plc are
forecast to report increased profit this year, according to
analysts' estimates compiled by Bloomberg. Airline earnings may
drop 40 percent partly because of increased fuel costs, the
International Air Transport Association said Dec. 14.
Oil is likely to trade at $75 to $120 this year, said Roger
Read, who since giving his forecast for an average of $100 has
left New York-based Natixis Bleichroeder to join Morgan Keegan &
Co. in Houston.
2010 Gain
Crude gained 15 percent last year, less than the 20 percent
advance of the Standard & Poor's GSCI gauge of 24 commodities.
The Standard & Poor's 500 index of stocks jumped 13 percent,
while bonds as measured by Bank of America Merrill Lynch's
Global Broad Market Plus Index returned 4.9 percent.
Spare production capacity in the Organization of Petroleum
Exporting Countries is about 5.7 million barrels a day and
sufficient to absorb this year's projected consumption increase,
according to Bernstein's Clint.
Higher-than-average U.S. stockpiles will limit price
increases this year, said Frank Schallenberger, head of
commodities at Landesbank Baden-Wuerttember in Stuttgart,
Germany, who predicts $87 oil this year. U.S. inventories were
339.4 million barrels as of Dec. 24, 7.6 percent above their
five-year seasonal norm, the U.S. Energy Department said.
Too Much Oil
"There isn't much for the bulls," said Schallenberger,
whose 2010 estimate of $78 was about 2 percent below last year's
average. "There's still too much oil."
This year's projected average of $87 is 4.8 percent lower
than the closing price of $91.38 on Dec. 31. Prices have almost
tripled since reaching a low of $32.40 in December 2008, when
OPEC agreed to record production cuts. The group acted after
crude tumbled from an all-time high of $147.27 in July 2008.
Futures for February delivery climbed as much 1.1 percent
to $92.40 a barrel in New York today, the highest price since
Oct. 7, 2008.
OPEC, which accounts for 40 percent of world production,
may raise supply if needed, Secretary-General Abdalla El-Badri
said on Dec. 11 at the group's last meeting in Quito, Ecuador.
Ali Al-Naimi, oil minister for Saudi Arabia, the group's biggest
producer, prefers $70 to $80, he said at the meeting.
"We subscribe to the notion that OPEC is the central bank
of oil," Schenker said. "If global growth continues to rise,
even at a decelerated pace, there may very well be a need for
OPEC to raise production quotas."
OPEC Meeting
OPEC said Dec. 11 it will skip a regularly scheduled first-
quarter meeting, a sign that it's ready to let prices climb,
said Lawrence Eagles, head of oil research at JPMorgan Chase &
Co. in New York. Crude will average $93 this year, according to
Eagles, whose 2010 forecast was $78.25.
"At any point, OPEC could bring on extra supply and push
the market down," he said. "We don't think they'll do that."
OPEC'S daily production capacity will shrink by about 1
million barrels to 4.7 million as countries outside the group
struggle to make up the shortfall, according to Clint. Supply
from Russia, the largest non-OPEC producer, will drop 2 percent
this year, while output from Mexico, which provides about 13
percent of U.S. imports, will fall 9 percent, he said.
Shell's earnings per share will rise to $3.71 this year
from $3.03 in 2010, according to the mean of as many as 22
analysts' forecasts compiled by Bloomberg. Exxon's will climb to
$6.55 from $5.92, based on 10 estimates. BP will post earnings
per share of $1.12, compared with a loss of 23.3 cents a year
earlier, according to 18 estimates.
Oil Earnings
Shell, based in The Hague and Europe's biggest oil company,
jumped 15 percent last year in Amsterdam trading. Irving, Texas-
based Exxon, the biggest publicly traded crude producer, rose
7.6 percent in New York. BP, which agreed last year to a payment
of $20 billion for its role in the biggest offshore oil spill in
U.S. history, fell 22 percent in London.
Airline profits will drop a total of $6 billion to $9.1
billion as fuel costs rise and passenger demand wanes, according
to the Montreal-based International Air Transport Association.
Oil consumption will increase by 1.3 million barrels a day,
or 1.5 percent, to a record 88.8 million in 2011, according to
the Paris-based International Energy Agency. Demand will fall
0.7 percent in Europe and be little changed in the U.S. China,
which accounts for 11 percent of the global total, will consume
9.7 million barrels a day this year, 4.8 percent more than last
year, the IEA said Dec. 10.
U.S. demand may also rise this year as the Federal Reserve
purchases $600 billion of Treasuries through the first half of
this year to sustain the recovery, according to JBC Energy, a
Vienna-based consultant.
"The growth story is the primary focus," said Prestige's
Schenker, whose 2010 forecast of $78 was about 2 percent below
the annual average. "If speculative forces push crude markedly
higher, it may be difficult for OPEC quota changes to
significantly impact prices."
For Related News and Information:
News on oil markets: NI OILMARKET <GO>
Top energy, oil stories: ETOP <GO> and OTOP <GO>
News on OPEC: NI OPEC <GO>
OPEC production targets: OPCA <GO>
--With assistance from Rachel Graham in London and Ayesha Daya
in Dubai. Editors: Mike Anderson, Joe Link
To contact the reporters on this story:
Grant Smith in London at +44-20-7330-7353 or
gsmith52@bloomberg.net;
Mark Shenk in New York at +1-212-617-4331 or
mshenk1@bloomberg.net
To contact the editor responsible for this story:
Stephen Voss at +44-20-7073-3520 or
sev@bloomberg.net
