Oil prices are unlikely to remain at today’s very low rates, but they will not rebound to 2014 levels of over $100 per barrel in the near future, says Avitas economist Adam Pilarski, speaking on 29 February at the ISTAT Americas conference.
In 2011, Pilarski famously predicted at the ISTAT Americas conference that oil prices over $100 per barrel were not sustainable, and was widely derided for forecasting that prices would fall below $40 per barrel by 2018.
But oil prices fell even faster and sooner than Pilarski’s forecast, diving from over $140 per barrel in mid-2014 to between $33-$35 per barrel today.
Despite his 2011 prediction, Pilarski now believes prices can only go higher over the near-term.
“Oil prices will go up. We’re not going to go to $20 [per barrel],” Pilarski says.
He cited two reasons to justify his new prediction. First, the world’s largest oil producer, Saudi Arabia, is fighting two wars and needs to raise revenues, so “is no longer interested in keeping oil prices that low”, Pilarski says. Secondly, lower oil prices mean that fracking operations are less competitive, which will reduce the supply, he says.
But the price of oil is “not going over $70 for a long time unless you have a nuclear holocaust or something like that”, he adds.
The sudden drop in oil prices over the last two years will still have a major impact across the industry.
For manufacturers, the fall in oil prices has not yet had a discernible impact on sales of new aircraft designed to be optimised for fuel efficiency.
But eventually the reduced price of oil could reduce the value of new and more fuel efficient aircraft, Pilarski says.
“High oil prices created new realities. The omelet cannot be unscrambled. Those who invest in new technology may not reap all the benefits they hoped for,” he says.
On the other hand, cheaper fuel bills mean that airlines can operate more routes without losing money.
“Airlines will expand capacity and they will be making money,” Pilarski says.
Source: Cirium Dashboard