OECD says oil prices could reach $150-$270/bbl by 2020
LONDON -- Oil prices could rise to anywhere between $150 and $270/bbl by 2020 as demand growth in emerging markets like India and China out paces expected supply, the OECD said Wednesday.
"I think people have been calmer about oil prices given the new supply, but if you really look at the implications of rising demand, you see this isn't true," said Isabelle Koske, economist at the Organization for Economic Co-Operation and Development and one author of a report on oil prices published Wednesday.
"There is a strong price increase needed despite this new oil production coming on stream," Ms. Koske told Dow Jones Newswires.
The report shows the central role that Asian oil demand will play in determining prices, even as the U.S. reduces its need for energy imports amid a surge in its unconventional hydrocarbons production. Earlier this week, the U.S. Department of Energy reported China overtook the U.S. as the world's largest net oil importer.
"All estimates point to Asian demand propelling growth," said Amrita Sen, chief oil analyst at Energy Aspects, a research consultancy on energy markets. She said the implications of the U.S. shale-oil boom could be overstated for the rest of the world if demand from Asia keeps up.
China last month said crude imports in January rose 7.4% from a year earlier, indicating increasing demand.
The Paris-based OECD said the expected climb in oil prices is likely to be a volatile path, with sudden changes in supply and demand having large effects in the short term.
"Based on plausible demand and supply equations, there is a risk that prices could go up to anywhere between $150 and $270/bbl in real terms by 2020, depending on the responsiveness of oil demand and supply and on the size of the temporary risk premium embedded in current prices due to fears about future supply shortages," the report said.
Included in this projection is that higher oil prices would have negative implications for economic growth.
Brent oil prices are currently trading around $111/bbl, after reaching a 2013-high of $119/bbl. Prices have come off in recent weeks on concerns about the global economic recovery, particularly amid political turmoil in Italy and the budget impasse in the U.S.
The International Energy Agency said in its most recent report on oil markets that in the short-term signs of improvements in the global economy, which have driven expectations of faster global oil-demand growth, could be overly optimistic.
The biggest risk to the OECD's theory is if global economic recovery is slower than expected, particularly in emerging market countries, Ms. Koske said. Also, a big increase in prices could cause consumers and producers to change their consumption behavior, such as drive less.
"If they do so, this would clearly lower the oil price increase," she said.
Dow Jones Newswires