Oil price to hit new all-time high

Trieben, Austria: Erste Group analysts predict oil prices will hit new all time-highs with average prices of US$123 per barrel expected until March 2013. High liquidity, low interest rates and “quantitative easing” around the globe will stimulate new all-time highs it said.

“We expect an average price of US$123 per barrel of Brent until March 2013,” said Ronald Stoeferle, commodity expert at Erste Group.

“In Europe, the higher oil prices may soon be having an impact on the economy.  In euro, the price of Brent has already reached new all-time highs,” he said.

OPEC is keeping tighter control of oil prices than ever before and oil price vulnerability has increased by low reserve capacities.  Any escalation of the Iran crisis could push the price to US$150 to $200.

In its Oil Report 2012 launched this week, Erste Group analysts see the risks for the oil price heavily skewed to the upside.  At the moment, the market is well supplied, but the smouldering crisis in the Persian Gulf could easily push oil prices to new all time highs should it escalate.  The analysts believe that new all time highs can be reached in the first quarter, at which point we could see demand destruction setting in.

“The latently smouldering Iran crisis seems to be close to escalation.  The most recent manoeuvres, ostentatious threats, sanctions, embargoes and the shadow war currently ongoing, have heated up the situation further.  It seems we may soon see the last straw that breaks the camel’s back.  Even though Iran could probably only maintain a blockade of the Straits of Hormuz only for a very limited period of time, the consequences would still be dramatic.  The oil price would definitely set new all time highs and could reach levels of up to US$200, it said.

“The still low reserve capacity makes the oil price vulnerable to geopolitical tensions.  With the exception of Saudi Arabia, no country holds any significant reserve capacities.  But since Saudi Arabia has never exceeded the barrier of 10mbd on a sustainable basis, we harbour doubts as to whether the country can actually produce 12.5mbd.

“Risks are that it will take a supply side crunch to find out whether the alleged reserve capacity actually exists to the extent proclaimed.  At any rate, the decision of IEA to tap the strategic reserves during the Libya crisis is a clear indicator of the strained supply situation.

“The belief in a quick substitution of fossil energy carriers by alternative forms of energy seems illusory and naïve, given the current investment volumes and lip service.  But we still believe that – much like Julian Simon forecasted- high oil prices cause shifts in efficiency and technology.”