Oil prices at $ 45 over next 5 years, bank predicts
Regional, Economics, 1/27/2007

The Royal Bank of Scotland yesterday dismissed the recent mini resurge in oil prices as being short-lived, predicting that rates will slowly decrease to around 45 dollar per barrel over the next five years.

The recovery in oil prices to back over 55 dpb was seen helped by the onset of cold weather in the US and plans to double America's strategic reserves after rates fell briefly in mid-Jan to below the 50 dpb for the first time in almost 20 months.

But in its latest monthly report, the bank forecast that the mini-rally will "prove short-lived" and said instead it expected crude oil to "ease gradually to the mid-40 dpb over the next five years, as emerging spare capacity will increase." "Recent investment and drilling activity foreshadows additional supplies coming online over the next few months, while demand growth, albeit still robust, will return to a more sustainable pace," it predicted.

The bank made no reference to the possibility of any further interventionist role being played by OPEC, which helped prices to recover following output cuts made last year.

On Monday, the Centre for Global Energy Studies in London forecast that the cuts of around 1 million barrels per bay implemented by OPEC re sufficient to balance the oil market in 2007 around its reference basket price of 50 dpb.

In its report, the Scottish bank recorded that the secular decline of production from the British sector of the North Sea had not yet come to a halt, with November's oil production down 4 per cent on the year and gas output falling by 9 per cent.

The decline in oil to 1.4 mbpd and gas to 8,018 m cubic feet a day cut the total average daily value to Pnds 71.36 m (Dlrs 140 m) compared to Pnds 81.6 m a year ago, despite an increase of over Dlrs 3.5 to 58.92 dpb in the month's average oil price.

The bank said that high costs were partly to blame for the continuing production decline in spite of increased investment, but predicted that increased activity in the North Sea should bring "at least short-term stabilization in output."

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