Most investment banks have forecast the oil price will continue to rise but Lehman Brothers has opted to stick to its view prices will weaken “significantly” through the rest of this decade after peaking in 2008.
It forecasts crude oil will average at $105 in the third quarter of 2008 before settling down to $80 in the fourth quarter of 2008 and the first quarter of 2009. Figures from its Energy Special Report show the firm expects the price to average at around $84 from the fourth quarter of 2008 up to 2009.
Lehman Brothers’ stance contrasts with the views of other investment banks such as Goldman Sachs, which forecasts the oil price to reach $200 by 2010.
Houston-based Matthew Simmons, Chairman of energy investment bank Simmons Co International, told Emirates Business that $100 per barrel was very cheap. “In some places in Europe they pay $9 a gallon.
There are 42 gallons in a barrel. So currently they are paying $378 a barrel so it wouldn’t appear that $400 a barrel will have an impact on people’s behaviour.”
Simmons said global demand, despite the US financial turmoil, was now growing much faster than could ever be sustained – which would lead to continued high prices. Lehman Brothers’ prediction, on the other hand, is based on a study that shows demand from the OECD countries as well as China will drop.
It said OECD demand would fall by 100,000 barrels per day in 2008 and 2009 in contrast to its original projection of a 300,000 bpd one-off rise this year and flat demand in 2009.
“Combined with a minor downward revision to our original China demand projection, we now project total non-OECD demand growth of 1.2 million bpd this year, pulling 2008 total global demand up by 1.1 million bpd, a drop of 400,000 bpd from our original forecast in December,” the report said.
Over the longer term a number of leading indicators point to weakening prices as leading demand indicators trend downward, Lehman said.
“Many oil market bulls hold that emerging market demand will continue growing apace. However, even expanding Asian economies can show pullback, as evidenced by Japan and South Korea, which consume less oil now than at their 1973 and 1997 respective peaks,” the bank said.
Several factors point to a structural slowing in Chinese energy demand in the years to come, Lehman Brothers said.
Lehman says oil will settle at $80