The futures contract closest to delivery on the New York Mercantile Exchange tumbled 10 percent in the past three months to below $70 a barrel as investors fled riskier assets and the December 2015 contract lost 4 percent. At the same time December 2018 futures remain above $90 a barrel, suggesting analysts are less pessimistic about the long term. The U.S. Labor Department’s index for oil- and gas-field machinery costs rose in April for the first time in six months.

“The price is holding at decent levels” for delivery in later years, said Paul Tossetti, an analyst in Dallas with consultants PFC Energy. “You need a certain level for all these high-priced resources that are coming on-stream, deepwater Gulf of Mexico, deepwater Brazil and the Canadian oil sands. That’s the dynamic part of the non-OPEC oil supply.”
The oil contract closest to delivery slumped to $64.24 a barrel on May 20, the lowest intra-day price since July 2009, on concern that Europe’s sovereign debt crisis will derail the economic recovery. Oil for July delivery was trading on Nymex at $70.42, up 1.7 percent, at 11:11 a.m. in London.

Bank of America Merrill Lynch maintained on May 24 its 2011 price forecast, even as it sliced its projection for the second half of this year by 18 percent. The U.S. Energy Information Administration said yesterday that oil prices will rise to $108 a barrel by 2020 as the global economy rebounds.

Non-OPEC Growth

Merrill estimated supply from outside the Organization of Petroleum Exporting Countries will increase 1.1 percent, to 52.1 million barrels a day this year. That follows 700,000 barrels a day last year, the biggest jump in five years. Non-OPEC countries produce about 60 percent of global output.

“The costs related to the oil industry, materials, equipment, actually increased,” said Andy Sommer, senior analyst at EGL AG in Dietikon, Switzerland. “The back-end of the curve is supported by that.”
The Labor Department’s Index for U.S. oil and gas producers’ machinery costs rose 0.5 percent to 200.30 last month, its first increase since October.
“We also expect the market to remain relatively tight on solid emerging market fundamentals in 2011 and beyond, particularly in Asia,” Merrill’s head of commodities research Francisco Blanch said in the report. The bank said crude prices will average $85 a barrel next year.

Contango Persists

Oil futures for later delivery have been more expensive than immediate supplies since October 2008, a price structure known as contango that can indicate expectations for tighter supplies in future. The International Energy Agency forecast in a Nov. 10 report that global oil demand will grow 1 percent a year to reach 105 million barrels a day by 2030.

“Concerns over a Eurozone-centered debt crisis, and the Chinese economy, and U.S. financial regulations, have no impact on full-cycle production costs or on the medium-term view,” said Mike Wittner, head of oil market research at Societe Generale SA in London. “And the medium-term view is one of global oil demand growth bumping into a mature supply base.”

 

Source: Bloomberg