Oil Analysts Raise 2007 Forecasts

Oil analysts are raising their price estimates for next year on anticipated increased demand that may outpace the development of new reserves.

Crude oil will average $64 a barrel in New York in 2007, according to the median forecast of 29 analysts surveyed by Bloomberg News last week which is $2 higher than estimated at the end of the second quarter.  “We see a very tight market continuing into next year,'' said Kevin Norrish, a director of commodities research for Barclays Capital in London.  “The recent fall in prices is due to short-term factors,'' he said in an interview. “We're looking for fairly strong global growth, and we don't see capacity expanding by much.''

Oil's climb from less than $20 a barrel at the end of 2001 has been driven by the failure of producers to generate new supplies fast enough to keep pace with rising demand, especially in China and analysts are betting that trend will continue.  They forecast that oil would be $58 a barrel in 2006, according to the median in a Bloomberg survey in December. So far, crude oil has averaged $68.21, which is higher than any prior year.  “We just haven't seen dramatic increases in supply,'' said James Rollyson, an analyst at Raymond James Financial.

Oil consumption worldwide climbed 9 percent to an average 83.8 million barrels a day between 2000 and 2005, led by China and the U.S., according to the U.S. Energy Department. Global oil supply rose 8.6 percent to 84.5 million barrels.  Prices surged during the first half as Iran, the fourth- largest oil producer, pushed ahead with nuclear fuel enrichment, heightening tensions with the U.S. 

Iran has the world's second- biggest proved oil reserves and borders the Strait of Hormuz, a narrow waterway through which nearly a quarter of the world's oil is shipped.  Talks in Berlin between Iran and European Union officials aimed at breaking the deadlock over the atomic program produced some progress, Iran's chief nuclear negotiator Ali Larijani said on Sept. 28.  “It's been relatively cool on the political front recently, but odds are this won't continue through next year,'' said Rollyson at Raymond James.

Oil will average $65.50 a barrel in the fourth quarter, according to the median estimate in the survey. Analysts in June said oil would average $67.65 a barrel during the third quarter. Prices averaged $70.60 during the past three months, a record.  Strategists who forecast a drop in prices next year say a slowing U.S. economy will coincide with increased output.  

U.S. economic growth slowed to a 2.6 percent pace in the second quarter, 3 percentage points lower than the first three months of the year, the Commerce Department said Sept. 28.  “We're very pessimistic about the U.S. and global economy next year,'' said Eoin O'Callaghan, an analyst with BNP Paribas SA in London who expects oil to average $59.80 next year.  “The last four years, there's been limited spare capacity, making us sensitive to disruptions and geopolitical risk.''