Oil Prices Expected to Take a Breather, Then Rise in Second Half of Year

BLOOMINGTON, Minn. -- Gas prices could receive a bit of a trim in the near future, but don't expect the retreat to last long, according to a Telvent refined fuels Webinar that took place this morning. Brian Milne, Telvent's energy editor and product manager, predicted WTI crude oil prices could slip below $90 as early as this next week (WTI crude oil traded at $94.52 this morning). It's possible they will even trade down to a "support" level of between $80 and $85, he said.

However, during the Webinar, titled "Crude, Gasoline and Heating Oil Outlook," Milne said crude oil prices should begin to shift gears at some point in the second half of the year. Crude could trade at or above a "resistance" level of $104.60 during that timeframe.

And the picture probably won't get any prettier for motorists during 2012. "I think oil prices will be higher next year," said Milne. "Goldman Sachs and Barclays are predicting higher oil prices. I agree. Increased demand by emerging economies and supply tightness should fuel that rise."

Several world factors could change those predictions. Lost Libyan supply and Nigerian oil output disruptions due to unrest, strong global growth, a weak U.S. dollar and increased demand from countries such as China, Japan and the Middle East were all considered bullish factors for oil prices. In other words, those factors could make oil prices rise. Sluggish U.S. oil demand, a boost in OPEC output, continued high U.S. unemployment, a stronger U.S. dollar and European debt issues would likely make oil prices drop.

Gas prices may be slipping lately in part due to demand, which is down 0.3 percent worldwide thus far this year, said Milne. For the four-week period ending June 10, oil demand slipped 0.5 percent. The United States has been a major cause of the slip in demand. Total number of miles traveled in the country has decreased this year compared to previous years, according to Telvent research. "High retail oil prices and high unemployment in the U.S. means no oil demand growth," he said. "Demand has been dropping for the past several months."

China has also seen some slowdown in oil demand. However, the country is still seeing plenty of growth. "Inflation in China is rising," Milne said. "The government wants to make sure prices are not too high. But I wouldn't count Chinese demand out. It still will be a major factor. A drought that occurred there will also increase demand."

Milne added that oil demand in India "keeps on flowing." The Middle East is expected to demand more oil in the near future.

Although crude oil demand has dipped this year, diesel demand has risen. "U.S. distillate exports were more than 800,000 barrels on June 4 and going up," Milne said. "There is strong diesel fuel support in many places such as the Middle East, where diesel fuel is used for air conditioning."

For those wondering why prices at the pump rose this year while demand swooned, the weakened U.S. dollar is the most likely factor, according to Milne. WTI crude oil is priced in the greenback.

He added that although U.S. demand is declining, the country is still No. 1 as far as oil demand is concerned. The United States accounted for more than one-fifth of the world's oil demand in 2010. Chinese demand increased to 10.6 percent last year.

Telvent is a global information systems provider in several key industries.