The Cheap Oil Era Is Ending

The cheap oil era is undoubtedly coming to an end as easily accessible and affordable resources are depleting, according to Erste Group analysts. In their opinion, the high dependency on State-controlled oil groups and the currently low quota of private oil reserves and production point to an increase in the price of oil on long term.

Roland Stoeferle, an oil analyst with Erste Group, told a press conference that the structural problems of the oil industry were caused by the lack of action for a long time "and now we will increasingly start to feel the effects." In Stoeferle"s opinion, the exact point at which the maximum rate of global petroleum extraction will be reached or exceeded cannot be forecast but dependence on huge oil fields and the decreasing production in many major oil-producing countries such as Mexico, Norway and the U.S. seem to be clear signals in this respect. "The fact that the extraction capacities of international oil corporations have generally declined in the past ten years - at steeply rising prices, tells us a lot," stated Stoeferle.

According to Erste Group analysts, the longer the price of oil stays under 40 USD/barrel, the more and the faster the supply will decrease in the future, because investment and exploration programmes will be delayed or cancelled. As demand is hard to assess due to current distortions, effects and duration, Erste Group analysts expect a slower upwards movement, but at the current price level there is a very attractive opportunity/risk ratio. However, we will see a renewed, strong trend phase as soon as there is a noticeable improvement of the global economic outlook.

"This is why I expect an average price of 55 USD/barrel for 2009, but as soon as a sustainable economic recovery sets in, the price should climb over 70 USD," said Ronald Stoeferle. In his opinion, the upward price trend will continue, meaning that a price of 200 USD/barrel is "relatively feasible" in a time window of three to five years.

A coincidence or not, Erste Group"s estimates, launched only one day after the International Energy Agency forecast a potential oil crisis starting in 2010, come at a time when the international price of oil seems to have been left without any driver.