Last week, a Goldman Sachs analyst put out the word that the price of a barrel
of oil could "spike" to $105 in the next few years. The report sent
prices for crude shooting past $56 a barrel.
But the likelihood of hitting such an extreme oil price — at $105 per barrel,
almost twice the current value — is not so high, according to other analysts.
New calculations show that imbalances in the market could cause light crude
oil prices to increase to levels above the $55 per barrel average, which the
Energy Information Administration (EIA) says in its short-term outlook, published
yesterday, according to Margot Anderson, director of EIA's Office of Energy
Markets and End Use.
EIA also released its forecast for prices at the pump yesterday, looking ahead
to the next 18 months, and consumer prices certainly are high. This summer,
a gallon of gas will most likely cost an average of $2.28 per gallon at the
pump, from April to September, which is 38 cents higher than average prices
last summer. The agency predicts such high gasoline prices will last until next
year. The projected peak is $2.35 per gallon in May. A Goldman Sachs-type spike
"is not in our lexicon," Anderson says.
Based on their report, Goldman Sachs seems to have been exploring scenarios for what could happen, should a major oil supplier shut down, or in the event of an oil crisis like the one in 1980 and 1981, even though they say prices are rising in the absence of such an event.
Globally, the high cost of a barrel of oil has propelled the European Central
Bank to vote to raise its interest rates in order to stifle impending inflation.
In the United States, similar concerns linger over how gasoline prices will
radiate out to affect other the costs of other goods.
It's all about consumer expectations, says John Felmy, chief economist for the
American Petroleum Institute. In the context of prices in 1981, a barrel of
oil cost $80 to $90 in 2005 dollars. Drivers did change their behaviors then,
switching to more fuel-efficient cars, and, Felmy says, "there's some indication
that consumers are cutting back" now, as sales of large SUVs drop. Still,
the shift has been to smaller SUVs, he says, with no change in vehicle miles
traveled, and "gasoline is still only a small share of operating a motor
vehicle," at 20 percent.
In general, the greater point Goldman Sachs may be making is that consumers
only change their gas-buying habits if they think that the high prices are permanent,
Felmy says. And, "if they think it's short run, they're not going to react
very much," which seems to be the case at the moment.
The volatility remains in the larger market for oil barrels. "The market
is so tight and volatile, any little thing could send it up or down," Felmy
says, and the Goldman Sachs report last week turned out to be just one of those
little things.
Felmy also says that "whether it's corn or oil, the cost of production
is only part" of the world price of oil. Even though a barrel goes for
$50 or more, it still costs only $1 to produce it in Saudi Arabia, he says.
Last week's market response "seems to be little more than a reflection
of the truth that there is no necessary cap to oil prices, depending on circumstances,"
Barclays Capital analysts wrote in their weekly report. "Put together the
right set of parameters, no matter how unlikely they might be, and you can generate
any higher price you care to mention."
Naomi Lubick
Links:
EIA
Short-Term Energy Outlook, April 7, 2005
"At the pump," Part
I and Part II,
Geotimes, May and June, 2004
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