Bloomberg News

Brent Unlikely to Fall Below $80 in Next 5 Years, BofA Says

February 22, 2012

(Updates with supporting arguments starting in second paragraph.)

Feb. 21 (Bloomberg) -- Brent crude is unlikely to fall below $80 a barrel during the next five years, based on yearly average prices, because of a slowdown in production growth and rising OPEC budgets, Bank of America Corp. said.

The $80 lower limit will be supported by supply constraints outside the Organization of Petroleum Exporting Countries and is in line with many OPEC nations’ budgetary requirements of $80 to $90 a barrel, the bank said in an e-mailed research report, dated yesterday. Many unconventional fuels like oil sands, oil shales, gas-to-liquids or biofuels also have an “investment hurdle” of about $80 a barrel, the report said.

“Both OPEC and non-OPEC barrels have a strong floor at $80 a barrel,” Francisco Blanch, the bank’s New York-based head of commodities research, said in the report.

Brent crude futures in London traded near an eight-month high of more than $120 a barrel today as Europe’s finance ministers awarded 130 billion euros ($173 billion) today in aid to Greece and after Iran said it stopped sales of crude to French and British buyers to pre-empt a European Union ban on imports of its oil. The European benchmark last traded below $80 in September 2010. The price averaged $80.34 a barrel in 2010 and $62.67 in 2009.

Oil prices are likely to remain a constraint on global economic growth, according to the report.

“This suggests that prices will continue to spike over the next five years to keep on rationing demand back down to the limited available supplies,” the bank said. “Occasional demand rationing episodes could result in prices occasionally spiking to $200 a barrel over the next five years.”

--Editors: John Buckley, Rachel Graham

To contact the reporter on this story: Rachel Morison in London at rmorison@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net


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