Charlie Maxwell’s Oil Call: $300 In 2015

Charlie Maxwell, the energy analysts who’s been calling out values in oil and gas companies for decades, recently issued his long range oil price and supply/demand forecast. It calls for a range-bound oil price of $75 - $115 for a couple of years or so followed by new high prices in 2011 - 2012, $200 oil in 2013 and $300 in 2015. His fundamental model is very close the the analysis of megaprojects that I recently posted. He sees tightness creeping into the supply/demand dynamics in 2010 and increasing particularly in 2013 and beyond, just as I wrote last week.

On the other hand, Maxwell draws price implications that are more benign than my own. Where he sees oil at $200 in 2013, I’d be surprised to see it under $300. And where he sees oil at $300 in 2015, I imagine it will be closer to $500.

There is a tendency to look at the recent oil price spike to $147 and relate it to the weakening U.S. and global economies, drawing a conclusion that the economy is super-sensitive to oil much higher than $100. That thinking tends to suggest lower limits to the oil price on the basis that a higher price would destroy the economy and therefore reduce oil demand and be self-correcting.

While high oil prices certainly are a depressant on the U.S. economy, to the extent that the money gets recycled by the oil exporting countries it is more or less neutral for the global economy. More to the point, the current economic weakness we are seeing has everything to do with falling real estate prices and crazy mortgage and related credit risks that were created long before oil passed $100 a barrel. In short, our current economic woes, in my view, have very little to do with oil as compared with other factors.

So I think the wrong lesson is being learned about how high oil prices can go. On the other hand, Charlie Maxwell is a good deal wiser and more experienced than I am, so if he proves more right than I as to the out-years’ oil prices, it would not be a surprise. What is gratifying to me is that his view of the timing of oil supply and demand changes and the relative ability of the oil supply to satisfy demand going forward to 2015 is very similar to that which emerged from my analysis of megaprojects data.

Here is how Mr. Maxwell’s recent essay on the matter starts. You should be able to access the entire piece by clicking on the first link above.

Posted in Categories: Commodities, Contributor, External Research, USA.

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