Blog: Petroleum Prices Under Control

By Brooke C. Stoddard

The World Bank’s Development Prospects Group sees lower crude oil prices through the decade and has even lowered estimates it issued eight months ago. In September it predicted 2013 average crude oil prices at $105.8 a barrel, but by January of this year its prediction had fallen to $102.0 (both in nominal U. S. dollars). For 2014, the comparable projections were $106.5 and $102.2. The trend is consistent; for 2020 the average comparable projections published by the World Bank were $108.2 and $101.2. Listing these prices in 2005 nominal dollars, the World Bank group sees crude oil prices failing to keep up with inflation. The January 2013 report predicts average crude oil prices averaging $83.0 (in real U. S. 2005 dollars), falling to $79.8 in 2015, $76.8 in 2017 and $72.4 in 2020 – all prices are lower figures than the ones presented in September 2012.¹

The projections of the Energy Information Agency’s Annual Energy Outlook 2013 are of the same scale if not so optimistic. EIA’s AEO 2013 sees moderate real dollar price increases over the next 12 years. The AEO uses different benchmarks and in fact has even been changing them in its reports, but sees supply generally in balance with demand so that petroleum price hikes are moderate. AEO 2013 sees Brent crude oil prices rising from $111 a barrel, the price in 2011, to $117 14 years later in 2025, an increase on average of less than 1%  per year (Brent crude reflects petroleum extracted from the North Sea and is an international benchmark; West Texas Intermediate (WTI) is a measure of petroleum extracted in America). AEO 2013’s price listing for WTI is $95 in 2011 and $115 in 2025, increases of close to 1.5% per year. These projections are more optimistic than those of last year’s AEO 2012, which estimated WTI’s price in 2025 at $135, or a rise of an average of 3.0% per year (AEO 2012 did not make estimates for the Brent benchmark)²

Lately petroleum has been fluctuating, but generally holding its price levels despite other commodities sinking lower. Pressures for lower petroleum prices include slower growth in the Chinese economy, relatively abundant supplies in storage, rising U. S. production, and soft demand, most notably in the eastern United States where people are more likely to buy fuel-efficient vehicles and are finding alternate ways of getting to and from work. Factors for pressing prices upward include speculators who feel demand will increase with a rebounding economy in the United States.

Within the last five years the WTI benchmark peaked in 2008 at over $140 a barrel before plunging the following year during the U. S. economic downturn to less than $40 a barrel. Since then its trading range has been roughly $70 to $100 a barrel.³

¹ World Bank, Development Projects Group
² Energy Information Agency Annual Energy Outlooks
³ Energy Information Agency

—

Brooke C. Stoddard is an Alexandria, Virginia-based writer covering business, manufacturing, energy, and technology.