Oil Prices Expected to Take a Breather, Then Rise in Second Half of Year

BLOOMINGTON, Minn. -- Gas prices could receive a bit of a trim in the near future, but don't expect the retreat to last long, according to a Telvent refined fuels Webinar that took place this morning. Brian Milne, Telvent's energy editor and product manager, predicted WTI crude oil prices could slip below $90 as early as this next week (WTI crude oil traded at $94.52 this morning). It's possible they will even trade down to a "support" level of between $80 and $85, he said.

However, during the Webinar, titled "Crude, Gasoline and Heating Oil Outlook," Milne said crude oil prices should begin to shift gears at some point in the second half of the year. Crude could trade at or above a "resistance" level of $104.60 during that timeframe.

And the picture probably won't get any prettier for motorists during 2012. "I think oil prices will be higher next year," said Milne. "Goldman Sachs and Barclays are predicting higher oil prices. I agree. Increased demand by emerging economies and supply tightness should fuel that rise."

Several world factors could change those predictions. Lost Libyan supply and Nigerian oil output disruptions due to unrest, strong global growth, a weak U.S. dollar and increased demand from countries such as China, Japan and the Middle East were all considered bullish factors for oil prices. In other words, those factors could make oil prices rise. Sluggish U.S. oil demand, a boost in OPEC output, continued high U.S. unemployment, a stronger U.S. dollar and European debt issues would likely make oil prices drop.

Gas prices may be slipping lately in part due to demand, which is down 0.3 percent worldwide thus far this year, said Milne. For the four-week period ending June 10, oil demand slipped 0.5 percent. The United States has been a major cause of the slip in demand. Total number of miles traveled in the country has decreased this year compared to previous years, according to Telvent research. "High retail oil prices and high unemployment in the U.S. means no oil demand growth," he said. "Demand has been dropping for the past several months."

China has also seen some slowdown in oil demand. However, the country is still seeing plenty of growth. "Inflation in China is rising," Milne said. "The government wants to make sure prices are not too high. But I wouldn't count Chinese demand out. It still will be a major factor. A drought that occurred there will also increase demand.

Future Gas Prices - Seattle Transit Blog

One of the more intellectually lazy things that some transit advocates ( including me ) do is to expect immediate, sharp increases in the price of gasoline.

The “peak oil” argument is well rehearsed with this audience, so I’ll skip over it. It may very well be that argument is correct, immediately relevant, and we will soon see increases. However, there are plausible alternate scenarios where expensive gas is years, or even decades, off.

For one thing, we could have a sustained period of economic ruin, limiting demand. Alternatively, technology has a way of finding more reserves and making known ones more economic to exploit.

More interestingly, policy, both in America and elsewhere, could open up a lot more oil to exploration in the coming years. We could open up more offshore areas to exploration and drilling, which isn’t all that unpopular considering the worst developed-country spill in history is in recent memory. Canada could disregard the horrendous environmental impacts of tar sands exploitation and access another Saudi Arabia of hydrocarbons. Major producers with nationalized oil companies – like Saudi Arabia, Venezuela, and Mexico – could stop using those companies like cash machines and allow them to properly invest in developing their reserves. If the political pressure gets too hot, America might decide to have a gas tax holiday and simply top off the highway fund with more general fund dollars.