[UncoveringTruths]

WASHINGTON (Reuters) - China's growing thirst for petroleum, tight supplies and little spare production capacity will keep oil prices volatile through 2030, with the possibility of spikes as high as $100 a barrel, the International Monetary Fund said Thursday.

"In short, it will continue to be a rocky ride going forward, with a wide band of uncertainty surrounding high expected prices," said Raghuram Rajan, the IMF's chief economist.

As living standards improve in China, India and other developing nations, oil demand will increase, especially for cars and trucks, Rajan told reporters. The IMF forecast indicates that China will be consuming nearly as much oil in 2030 as the U.S. consumes now. Currently the U.S. consumes about a quarter of the world's oil production.

IMF: Oil could hit $100, hurt growth

[UncoveringTruths]

Here is the PDF report for you experts.

Oil Market Developments and Issues

Happy Reading!

[Geology_Guy]

If you think about it what's wrong with $100 a barrel oil in 2030? Figuring 2% inflation which seems the norm lately $100 oil would not be to bad in 25 years.

The media says $90 oil in inflation adjusted terms was what we were paying in the early 1980's.

Same price esentially for oil in 2030 and 1980-not to shabby.

I have a hard time though seeing oil that cheap in 2030!

[tdrive]

If you think about it what's wrong with $100 a barrel oil in 2030? Figuring 2% inflation which seems the norm lately $100 oil would not be to bad in 25 years.

I concur. By 2030 at 2% annual inflation assuming 50$/bbl oil average
price in 2005, oil price will be 82$/bbl. Assuming 3% inflation, it will be 104$/bbl.
This is consistent with the Hotelling theory of scarcity rent.
Also do not forget that the core inflation excludes energy prices,
so the real inflation is actually higher. At around 4% real inflation
the oil price will be at 133$/bbl in 2030.

Cheers,

[UncoveringTruths]

I feel this is an optimistic report. Why else would it have come from the IMF. I found the infrastructure area kind of ambigous. If you know we will need it build it. I did notice they increased the estimated price of oil from there last report by 37%.

[wisegoat]

optomistic? HARDLY.

Seems to be saying we're not gonna be able to relax even on to 2030 (and beyond?) with a tight and shakey market with prices intermitedly spiking $100 throughout.

Not "By 2030 oil will be $100"

[bobaloo]

Best laugh I've had today, the IMF warns that oil could reach $34 by 2010 and up to $56 by 2030...

Financial Times Article

Guess they don't read the papers much?

[tokyo_to_motueka]

so the alice-in-wonderland types at the IMF concede "non-Opec production reaching a plateau around 2010".

they don't say what happens shortly after said "plateau".

and so they say it all comes down to ramping up OPEC production.

but from which countries?

[bobbyald]

Best laugh I've had today, the IMF warns that oil could reach $34 by 2010 and up to $56 by 2030...

I had to laugh too but then I realised that they meant per gallon

[MJ]

I had to laugh too but then I realised that they meant per gallon

Demand would be destroyed before reaching $34/gal.

[savethehumans]

Well, THAT explains the IMF! They come from--an alternate Earth! It's just that no one's had the nerve to TELL them yet...or maybe no one's figured it out?

[bigfnman]

An honest mistake. They forgot the digit in front of the 34. Be it a 1 or a 2. Probably the latter.

[aahala]

Another possiblity is the second digit was an exponent of the first. So
56 was really meant to be 5 x 5 x 5 x 5 x 5 x 5.

[nth]

it is based on today's dollars, so what will it be in 2010 dollars?

[No-Oil]

Whooooa there cowboys. The IMF is talking about average Crude prices, not "light sweet" crude that you see mentioned all the time at over $55 a barrel.
Some heavy crude is shipping today for less than $12 barrel & the main bulk of crude pumped in the world is of medium to heavy weight & trades for much less than the desirable "light sweet" crude that is preferred in the west for petrol production & because it is what our refineries are designed to process.

The long term futures medium/heavy crude price is around $20 a barrel at the moment (haven't looked for a while) & that was for December 2008 deliveries. Thus the IMF is correct in their predictions for AVERAGE crude prices, which encompasses all types of crude on the long term futures market.

Quote from FT report today;-
"Long-term crude futures have traded above $30 per barrel since early 2004, the first time this level has been breached. This is not just a function of higher spot prices. When crude last nudged $40 back in 2000, futures for delivery in 2010 remained steady at the $20 mark."

Note the increase is in long term futures !
Another quote from DollarDEX on 26th Feb 2005;-
"Recent cold weather has pushed up the price of oil again to over $50 p/b, but also interestingly the long term crude futures are over $40 p/b as far out as December 2010. Other commodity prices, such as copper and iron ore also continue to push higher."

Now both of those quotes could be right adjusted for todays oil outlook, so you should be able to see what the IMF is talking about, so $30-40 a barrel in 2010 is correct.

I'm having trouble finding a link to prices for medium/heavy crude trades, but they do happen, just not sure where they are traded. In fact if we could process heavy crude & get better than 50% yealds of products than we get from sweet crude, then so long as we have storage for the waste by-product we would be better off building heavy crude refineries & buying the cheap stuff ! Just an idea.

[sulayman]

I asked the FT about this, and they said in reply....

Dear Sir,

the figure is right.
IMF is forecasting $34 in real terms in 2010, that would traslate in money
of 2010, that is, nominal terms (if we assume inflation rising yearly at 3
per cent) of a price about $45. The forecast for 2030 is $39-$56, that
would traslate in nominal terms: $80-$120.
In any case, IMF is talking about a "permanent oil shock" as if we look
back, oil prices between 1990 and 2000 were, on average, below $20 in
nominal and real terms. And no other international body has talked, at
least in public, of prices soo high.
best

[aahala]

No Oil

You may be right, but nowhere in the linked article is the word "light" or
"heavy" is used.

At the end of the article, there are these two sentences:

"The IMF warning came as the US Department of Energy on Thursday raised its oil price forecast in 2005 and 2006 to about $55 a barrel, up more than $6 from last month.

US crude futures were flat in late afternoon trade on Thursday at $55 a barrel."

The above sentences clearly do not refer to heavy crude, if the author wants to use the words "crude" and "oil" to refer to first both and then to
only one, he is obliged to alert readers he has changed the meanings
unless it's a deliberate attempt to mislead them.

[nth]

Thanks Sulayman.

I think IMF is being conservative for 2010.
I think industry people will disagree with 2030, but not necessarily 2010. $45 is not that high. Barring a recession, oil analysts that I have read are saying supplies will remain tight from now till 2010. Anything before 2010 are basically declared and can be confirmed with supply purchases. By using oil supply purchasing contracts, one can estimate the maximum oil production. So based on industry announcements and supply purchases, analysts mapped out expected oil production increases from now till 2010.

So since supplies are tight, no extra spare capacity will come online. This will mean prices stay high barring economic slowdown.

There is a high likelihood demand will drop due to economic slowdown before 2010. This will push out recognition of PO by another decade, in my opinion.

[nth]

Here is some real prices:

http://www.encana.com/doing_business/crudeoilpricing/



on another note, oil deliveries to some major oil refineries are long term contracts, so prices are often fixed. it is up to participants to engage in market trading to hedge these contracts. thus, the long term contracts can lock in low rates, while producers benefit from market price going up.

[bobbyald]

Demand would be destroyed before reaching $34/gal

I was jesting of course.


However, I am interested at what price per gallon you believe demand will reduce sufficiently to put a cap on the price with say just a 5% reduction in supply.

I did a quick survey in my office (in the UK where we currently pay about $7.50 per gallon) and no one said they would give up their car at $34 gallon. They would reduce usage, be more selective in their journeys and car share but would NOT lose their car - interesting don't you think?