Analysts don’t expect oil prices to reach 2008 levels

Article by Christian A., on January 4, 2011

If analysts are to be believed, we should all breathe easy as oil prices may be rising in 2011 but they will not reach the heights that they were at in 2008. Current oil prices are now nearing $100 per barrel however analysts are confident that it won’t exceed this price because of several reasons.

One is that oil companies are making sure that before supply hits a crisis point, they will have already stepped up spending plans. Other reasons are that resource nationalism has eased; the dollar has become stronger; and there are less worries that oil production is near peaking.

But the most compelling reasons are related to short-term supply fundamentals. In particular, there is far more oil in storage, far more fuel capacity at refiners worldwide, and far more idle oil wells that OPEC can reactivate when it chooses.

The latest Reuters poll indicates that analysts anticipate an additional 8% gain in average prices in 2011. They believe that the conditions for a "super-spike" have dissipated.

Edward Morse, managing director at Credit Suisse, said that oil is different now since there are “bottlenecks that have been overcome both in refining and production capacity.” [via autonews - sub. required]

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