Oil price estimates vary wildly, but average is on the high side

A CONTRIBUTOR | DECEMBER 2011 | SOURCE: The Australian

Forecasting oil prices is a dangerous game, but today's highly unstable global economic and geopolitical backdrop makes it harder than normal.

Analysts' predictions for oil prices next year have a much wider range than in previous years. The Centre for Global Energy Studies has a lowball estimate of only $US76 ($74.85) a barrel for Brent crude next year. Its high-price scenario puts average prices at $US112.

Oil price estimates vary wildly, but average is on the high side

Banks differ in their predictions. Goldman Sachs, often cited as the most astute forecaster of commodity prices, is the most bullish of the big banks, reckoning prices will average $US120 next year, almost 10 per cent above the average for this year.

Morgan Stanley is the most bearish, with a forecast of slightly less than $US100.

Analysts have to weigh the increasing risks of a collapse of the eurozone triggering a global economic recession, which would send prices plunging. But if growing tensions in the Middle East, particularly over Iran, disrupted oil supplies, there would be an equally important impact on prices in the other direction.

This month an Iranian politician said the military would practise shutting the Strait of Hormuz, the world's most important oil shipping route, helping to send prices $US4 higher.

Goldman Sachs analysts write that "the crude oil market continues to navigate between these two extremes, with the whirlpool of a world economic recession on one side and the rocks of potential shortages on the other".

The energy studies centre's Manouchehr Takin said: "All analysts are in the same boat. These two big factors make it harder to forecast prices for next year than normal."

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