According to the latest International Energy Agency (IEA) data, the world’s demand for oil is slowing at a time when supplies are modestly increasing. The world registered a zero increase in demand for the month of June and 100,000 barrels a day in new production coming online from Saudi Arabia. As a result, the IEA has downwardly revised its global oil demand forecast this year by 100,000 barrels per day (bpd).
Market swings have sharply reduced the barrel price of oil to the mid $80 range. With sluggish demand, are these low oil prices here to stay?
Barclays Capital answers this question with a firm “no.” In a recent global energy outlook report, Barclays energy analysts predict oil prices will likely trend higher in the near term. “Over the next 12 months, as the current risk-off trade subsides, we expect oil prices to be on a rising trend from $100-$130 a barrel, even with potentially slower economic recovery in OECD countries,” said Barclays analysts regarding the advanced economies.
Amrita Sen, Barclays energy strategist in London, sees global oil demand on a “solid upward trajectory” largely as a result of “structural changes in non-OECD countries.” In other words, the oil needs of the developing world will continue to support higher oil prices.
In spite of the demand slowdown noted by the IEA, Barclays believes – and we agree – that the overall macro picture supports a higher oil price. Oil suppliers have yet to truly catch up with the new emerging economy demand structure, particularly in Asia. By 2012, Barclays expects to see evidence of sustained supply capacity tightness. By then, $100 a barrel oil is likely to be the “new sustainable norm.”