Oil price may drop to $40/bbl by 2007 - consultant

01 November 2006 22:04  [Source: ICIS news]

EAST BRUNSWICK, New Jersey (ICIS news)--Crude oil prices are primed to plunge from $58/bbl currently to about $40 by the end of 2007, a consultant said on Wednesday.

“The three-year bull market in crude oil prices sparked a worldwide surge in exploration and development,” said Dan Lippe, principal at Petral Consulting. He spoke at a Drug, Chemical & Associated Technologies Association/Institute for Supply Management meeting, held in conjunction with ICIS.

“Global production has the potential to increase by 15-18m barrels/day during 2006-2010,” Lippe said. Of that, he said 60% will come from non-Organization of Petroleum Exporting Country sources. During the same period, demand growth will total only 5-7m barrels/day, he said.

The decline in crude is expected to lead to a decline in ethylene and propylene prices, but profit margins are unlikely to be as weak as they were in 2001-02, according to Lippe.

“Today ethylene producers have taken a solemn vow to never increase capacity in the US again. That will give them the chance to enjoy good margins, even as ethylene prices fall from 45 cents to 30 cents/pound and propylene from 40 cents to 30 cents,” said Lippe. “In the late 1960s that vow lasted 5 years. I suspect this time it will be 3-4 years.”

By: Joseph Chang
+1 713 525 2653

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