Gazprom, Russia’s gas monopoly, on Tuesday predicted oil prices would reach $250 a barrel in 2009.
The striking prediction came as the International Energy Agency, the developed world’s energy watchdog, warned that record high prices were needed to choke off demand in order to balance the oil market.
It is the IEA’s most candid admission to date that oil supply is struggling to catch up with Asian demand, and follows the sharp rise in prices last week, which saw crude jump more than $16.24 in less than 36 hours to a record $139.12.
Gazprom’s prediction came at a strategy presentation in Deauville, where Alexei Miller, chief executive, said: “Today we are witnessing a very great change for hydrocarbons. The level is very high and we think it [the price of oil] will reach $250 a barrel.” A company spokesman specified that Gazprom believed that level would be hit in 2009.
That is substantially higher than forecasts by analysts, who see oil prices in 2009 ranging between $100 and $200.
In its monthly oil market report, the IEA said “supply growth so far this year has been poor and higher prices are needed to choke off demand to balance the market”. It added: “Abnormally high prices are largely explained by fundamentals”.
Mr Miller agreed with the IEA’s assessment, saying that speculators were not ”a determining influence”. He said: ”Competition for resources and their use is growing.”
The market responded by pushing prices back up after they had fallen below $134 earlier in the session. Nymex July West Texas Intermediate rose 70 cents to $134.95, while ICE July Brent added 53 cents to $134.38.
As expected, the IEA cut slightly its forecast for annual oil demand growth, but surprised the market with a deep reduction in its forecast for supply growth from non-Opec nations, leaving the world more dependent on the producers’ cartel.
It cut its demand growth forecast further by 80,000 b/d to an annual increase of 800,000 b/d because of record high prices, the slowing US economy and the partial removal of fuel subsidies in some Asian countries.
However, the agency warned that so far, there were “very few signs of slowing demand in non-OECD countries where economic growth is far more significant than price in determining demand”.
The cut in the IEA’s forecast for oil demand growth was overshadowed by a larger cut in forecast supplies. The agency cut its forecast for non-Opec supply growth to just 455,000 b/d, or 225,000 b/d below last month’s forecast. It expected most of the non-Opec fresh output to be in the form of biofuels, which would account for 72 per cent of the supply increase.
The non-Opec supply growth forecast for 2008 is now below the growth achieved by the group both in 2007 and 2006, in spite of significantly higher oil prices.
The agency also warned that the imbalance between demand and supply forced a counter-seasonal drop in rich countries’ oil inventories in April. It estimates that stocks fell in April by 8.1m barrels, compared with a traditional increase in April of about 30m barrels.
It warned that current prices could “impinge upon growth prospects”, even though the global economy is more resilient to rising oil prices. “Globally, the high oil price is contributing to inflationary pressures,” it said.
The IEA’s warning echoes comments on Monday by Tony Hayward, chief executive of BP, who said the oil market was not well supplied.
“In a well functioning market where supply and demand are balanced, prices should be stable. Where prices are high, however, they show that supply is not responding adequately to rising demand …and that is where we find ourselves today,” Mr Hayward said.
Francisco Blanch, head of commodities research at Merrill Lynch, said on Tuesday he was raising his forecast for WTI prices in the second half of the year to $121.50, based “a combination of lower than expected supplies and unrestricted demand. Non-Opec output is really struggling to expand.”
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