The year of the oil price
All being well, 2010 should be a year of relative comfort for consumers of energy, although there may be touches of pain for producers
Natural gas prices will remain low because of abundant supply, which should, in turn, keep power-generation costs low and assist recovery in big consuming economies.
Oil prices should also remain affordable, because the fundamentals don't yet suggest any reasons for another bull run in the market. Demand for oil, especially in the US, remains sluggish, even though the economy is on its way out of recession. And world oil supplies remain ample. Opec's spare production capacity, of 6m barrels a day (b/d), should be sufficient to cope with any surge in demand from Asia, at least for the next few years. And in the nearer term, the volume of oil held in floating storage (PE 12/09 p31) – more than 100m barrels – should prevent rapid price inflation in the case of a faster-than-expected pick-up in demand.
What this means for oil prices is, of course, an open question. Opec believes $75 a barrel is fair. And that would probably satisfy other producers. It's high enough for some developers in high-cost regions, such as Canada's oil sands and Brazil's deep waters.
Even some consumers might grudgingly accept it. But many won't: at a price of $75/b for the next 12 months, US drivers would be paying more than double what they paid for gasoline 10 years ago; on the evidence of recent months, this is enough to make them reconsider their driving or car-buying habits.
And the higher oil prices go, the greater the trend towards conservation globally will be. As the world's leaders look back on their promises in Copenhagen, it's a high oil price as much as anything else that will persuade populations to endorse new climate-change strategies. The world has already seen what a high carbon price can do to consumption: the oil market was at it well before politicians regulated any carbon levies. And it worked.
Laying golden eggs
So, expensive oil in 2010 could maintain the momentum of last month's UN climate-change meeting in Copenhagen. In parallel, producers must realise that cheaper oil now might extend the life of their golden-egg-laying goose. With the world's consumers aligned against hydrocarbons for environmental and affordability reasons, the last thing producers should do is push to make them more expensive.