CALGARY — Oil prices are expected to bounce around a relatively tight range in the coming months, tugged in opposite directions by economic jitters and the uncertain fate of U.S. offshore drilling.
“Everybody’s holding their breath and waiting,” said Ralph Glass, an economist with AJM Petroleum Consultants.
In its latest quarterly commodity price forecast released Monday, AJM predicts the West Texas Intermediate oil price will average US$80 per barrel for the rest of 2010.
That’s unchanged from the consultancy’s previous outlook in March —well before a rig explosion in the deep waters of the Gulf of Mexico caused the worst oil spill in U.S. history. It’s also not far off from where crude was trading before the blowout.
Despite the continuing havoc in the Gulf, there remains an oversupply of crude in the United States that has kept a lid on prices, Glass said.
Worries over the health of the overall economy has a lot to do with it, too.
Prices sank rapidly in mid-May to as low as US$68 as the European debt crisis intensified. On Monday, crude sat at around US$72 per barrel on a light trading day because of the holiday.
“The whole thing is sort of a wait and see aspect,” said Glass. “Are we going to go into a double dip recession or are we going to actually see some recoveries?”
Other commodities have fallen much more sharply in recent months than oil has, said Patricia Mohr, a Scotiabank commodity specialist.
“The prices are probably being underpinned to some extent by the moratorium on drilling,” she said.
After the rig blast, U.S. President Barack Obama imposed a six-month moratorium on deepwater drilling. Although a federal judge ruled against the move last month, the administration is set to introduce revised rules shortly.
For now, actual output from the Gulf — which makes up more than a third of U.S. domestic oil production — has not been affected, since the ban would only apply to exploratory and development wells.
However, daily production from the region is expected to be about 45,000 barrels per day lower than previous estimates this year and 195,000 barrels per day lower next year.
“A number of fields that were going to come on stream later this year will not because of the moratorium,” Mohr said. “Even when they lift the moratorium, you’re going to get delays in development because of changes in equipment design that are intended to prevent further accidents.”