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NEW YORK -- Crude oil prices may slip to $40 a barrel on the New York Mercantile Exchange in 2007 as biofuels demand rises and investors switch from energy to agricultural commodities, said Tetsu Emori, chief commodities strategist at Japan's Mitsui Bussan Futures Ltd., in a recent Bloomberg News report.
The transition to biodiesel and ethanol additives could slow the growth for petroleum-based diesel and gasoline in the United States, Europe and Japan, Emori told Bloomberg News earlier this week.
Drivers are increasing the amount of fuel they use that contains additives made from corn, soybean, sugar cane and oilseed, in an attempt to decrease pollution. In doing so, money may switch from the New York Mercantile Exchange, which deals on oil futures, to the grain futures market in Chicago, he noted. In 2006, corn prices have risen 47 percent in Chicago, while oil has only gained 2.4 percent, the report stated.
By 2030, he predicted that biofuels could account for 7 percent of global transportation energy, as long as governments implement policies that promote alternatives to oil.
"Biofuels may be an epoch of great change for oil, possibly ending the spike in prices of crude we've seen in the past few years, and attract pension and commodity fund managers to pour more money into grains,'' Emori told Bloomberg News. "A record of $78.40 a barrel set on July 14 may eventually be the peak of oil in the years through the end of 2010.''
With a Democratic Congress, demand will rise quicker for the corn-based fuel, according to Emori. "Democrats' victory means a lot and is a big plus for the U.S. ethanol industry,'' he said. Californian Democrat Nancy Pelosi proposed doubling the amount of ethanol required by law to be blended into gasoline by 2012, to 15 billion gallons, the report stated.
Emori had also predicted that oil would rise up to $96 a barrel in August of this year because of hurricanes in the Gulf Coast, the report stated.
"Some people may say the 2006 oil bubble eventually was short-lived like a firework that sparks and disappears,'' Emori said. "People called me crazy when I projected a couple of years ago that oil would surge this year. They may do that again because I said oil may touch the $40 a barrel mark next year.''
Bloomberg News gave a more conservative estimate, stating that crude oil will average $62 a barrel next year and $61 in 2008, citing a median forecast of 35 analysts.