Economist expects oil prices to rise

Mike Drotar is offering reassuring words to those in the oil sector — “triple digits.”

Mike Drotar is offering reassuring words to those in the oil sector — “triple digits.”

That’s the kind of per-barrel price Servus Credit Union’s vice-president treasury is forecasting for the medium term. Despite the uncertainty in Europe that’s helped drag crude oil prices below $90, Drotar points out in his most recent market outlook that cheap oil is hard to find, global geopolitical risks remain and emerging markets need energy.

The Edmonton-based economist cautioned, however, that a price above $125 over an extended period could trigger a recession in developed countries.

Despite his expectation that natural gas prices will remain low, Drotar anticipates Alberta’s growth rate to hit 3.1 per cent this year and 3.2 per cent in 2013. But he pointed to the province’s unemployment rate, which stood at 4.6 per cent in June, as a harbinger of “significant labour shortages.”

For Canada as a whole, Drotar is projecting economic growth of 2.1 per cent for 2012 and 2.2 per cent next year.

Inflation should remain at manageable levels, he said, with the Bank of Canada likely to hold its interest rate steady at one per cent until late 2013.

While the Toronto Stock Exchange is now 53 per cent above its March 2009 low, it’s down 15 per cent from last year’s high. Drotar urges investors to be patient, and noted how fear and a lack of confidence is impacting global equity markets.

The world could experience a modest economic recovery, said Drotar. Key issues that threaten this is the lack of credible plans and political leadership to address long-term government debt.

Austerity measures in Europe are necessary, he said, including a hard look at existing social programs there.

Continued support from emerging countries will be important, said Drotar, who suggested that a growth rate of six to eight per cent in China should be sustainable in the medium term.

In the United States, he noted that the banking system seems to be stabilizing and there has been some recent positive news related to the housing sector — although meaningful price increases are probably three years away. Ongoing concerns include the soft labour market and massive American debt.

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