Most oil price pundits expect prices to moderate from current 21-year peaks next year and to fall further by 2010, assuaging fears that crude is in a new high-price era, a Reuters poll found on Tuesday.
A survey of 14 analysts and consultants forecasts that US crude prices will slip to $30.12 a barrel next year, down 18 percent from a $36.77 average so far in 2004, on course to be the highest level since 1980.
Prices have ballooned this year as rapid demand growth in China, low US gasoline inventories and worries over supply security in the volatile Middle East prompt heavy buying from big-money investment funds.
The rise caught many forecasters by surprise and most analysts ultimately expect prices to fall back as Middle East political tensions ease and new capacity eases strains on the global supply system.
"Hopefully we will be going into 2005 with a more comfortable inventory level and we shall see a better balance in the gasoline market," said Commerzbank analyst Steve Turner.
Eight analysts with projections for 2010 on average forecast US crude at $26.81 a barrel, down from a mean of $29.22 so far this decade, though a marked increase on the post-1990 average of $22.68.
The average forecast for 2010 goes down even further if Barclays Capital's exceptional forecast of $43 is stripped out.
Predictions at the lower end of the range focus on expected supply growth in Opec producers Iran, Iraq, Algeria and Nigeria as well in non-Opec provinces such as Russia, Central Asia and West Africa.
"We contend the next four years will be tough given supply pressures from both Opec and non-Opec sources that threaten the current market psychology," said Doug Leggate of Citigroup.
This year's gains have fuelled speculation of a longer-term shift in energy prices as the higher cost of finding and producing enough oil to meet rising world demand forces a structural shift to higher prices.
"The more one looks beyond 2005, the more difficult it appears for the supply side to be able to catch up in time," the bank's Kevin Norrish and Paul Horsnell says. "This issue alone is enough to suggest that the back end of the oil price curve should stay very robust and still has scope to push up even higher."
So far most price pundits have made only modest upward revisions to their long-term forecasts. The projections are well below existing values on the crude price curve, which is trading at nearly $35 for US crude in 2005 and around $29 for 2010.
The poll reveals a split between equities analysts and energy market specialists, with the latter inclining more to the view that Middle Eastern risks and tight inventories will ensure a stronger long-term oil price.
"Prices in 2005 are likely to average $35 or higher as global demand growth remains robust, non-Opec supply growth is limited and political turmoil continues to roil Iraq," Washington D.C.-based PFC Energy wrote in a report.
"Commercial inventories are lower than any time in the last 20 years and they will remain so due to structural reasons. Whether or not we have geo-political events, they will count for much more in a low-inventory environment," said Katherine Spector at J.P. Morgan.
Chinese consumption drove the biggest increase in world oil demand growth in 24 years, tempting investors to channel money out of weak currency and equity markets and into oil.
Some analysts warn that current Chinese consumption levels are unsustainable and will likely start tapering off this year as government efforts to cool the economy hit home.
"Measures to slow growth in China will be bearing fruit. Oil demand growth will soften as a result," said Gerard Walsh of the Economist Intelligence Unit.
Many analysts warn that the simmering political tensions in several oil producing countries means their forecasts have heavy risks to the upside.
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