Investec’s Global Energy managers believe the oil price could fall to $110 a barrel but this level wi...
Investec’s Global Energy managers believe the oil price could fall to $110 a barrel but this level will act as a floor in the longer-term.
Jonathan Waghorn and Mark Lacey said near-term demand destruction is having an effect on the oil price however this was fully-expected by the duo.
“We do not consider this price reaction to be surprising since we have long held and well published view that global demand for crude oil would be negatively impacted if prices reached $135 a barrel.”
They also said that corrections are an inevitable part of the longer term up cycle in energy commodity prices and highlight that the crude price has corrected 20% on 12 occasions since 1999.
After a reaching a peak of $145 a barrel in early July this year, oil prices have since dropped $20, or 14%, reflecting that demand for oil in OECD and non-OECD countries has weakened.
US gasoline demand is down 3.3% year-on-year and now at the lowest level for a decade whilst there is also increasing evidence that non-OECD economies are reacting to the price rises as well, said Waghorn and Lacey.
However, they believe, the long-term fundamentals for the global economy demand is still very robust.
“The industrialisation and urbanisation of the non-OECD, together with the replacement of infrastructure in the OECD will continue to support steady long-term global energy demand growth. We expect a rebalancing of energy economies as OECD per capita energy demand reduces and non-OECD per capita demand increases, albeit to levels significantly lower than the current OECD levels.”
