Why oil won't hit $100
New production, new energy sources and some conservation could push down prices by 2010 - but don't expect $20 a barrel anytime soon.
NEW YORK (CNNMoney.com) -- Despite oil's record high last week, forget about crude going to $100 a barrel.
Prices have already dropped about 7 percent since last week, and are likely to fall even more in the coming years.
That's the consensus of analysts, who say rising production, the advent of biofuels, and conservation measures will likely lead to lower oil prices by 2015.
But how much lower is subject to wide interpretations, and estimates rage from $20 to $60 a barrel.
"If this market can continue going lower without OPEC disrupting it, it's very possible that by 2010 we could be substantially lower than anyone is imagining," said Peter Beutel, an oil analyst at the consultancy Cameron Hanover. "Four to 8 years from now, we could come down and break $20 a barrel."
Beutel bases his prediction on the fact that oil is historically a cyclical commodity. In the early 1980s it hit $38 a barrel, far higher than today's price when adjusted for inflation, only to fall to $10 a barrel by the late 1990s.
He also said high energy prices are hurting the American consumer, especially the young, the elderly and the poor.
"This has decimated their lifestyle," he said. "I'm convinced it will give us a recession."
But Beutel is in the minority, and most analysts don't ever expect crude prices to trade anywhere near $20 a barrel ever again - which is good news for renewable energy technologies, most of which need crude prices near the $50 mark to remain competitive.
The government-run Energy Information Administration has a $50 target price for crude by 2015.
EIA says by 2010 the amount of oil OPEC can pump should increase by 2 million barrels per day, largely driven by Saudi Arabia. The EIA, like most analysts, does not agree with the view that production has peaked or will soon peak in Saudi Arabia, although a small but growing number of experts say it might.
EIA says more oil from Central Asia and the Gulf of Mexico should offset production declines in the North Sea and and Mexico.
And co-called "non-traditional" fuels, such as oil sands from Canada and corn-based ethanol, are expected to double, going from the current 3 million barrels a day to 6 million barrels a day by 2010.
While demand is expected to continue growing, EIA says conservation measures should slow the rate of growth to 1.3 percent a year from 2 percent.
All this means the world's spare production capacity - the difference between what is consumed and what is produced - should grow, relieving some of the fears that have pushed prices so high as of late, such as a disruption in supply from a hurricane in the Gulf of Mexico or a war with Iran.
"You're not going to get to $100, but you're not going to see $20 either," said Glen Sweetnam, director of EIA's international economic and green house gas division.
Most analysts agree with EIA's assessment.
"This is an inherently cyclical business," said Edward Morse, chief energy economist at Lehman Brothers, who said he could see oil prices in the $40 to $50 range by 2010. "We're seeing a potential overbuilding of refining capacity."
But while the possibility of $100 seems to be fading fast, some analysts are predicting oil will remain close to current prices.
"Several recent forecasts, including those from such groups as the IEA (International Energy Agency) and the Economist Intelligence Unit, are in stark opposition to any forecast of a price drop," Mike McKee, a director with KPMG Corporate Finance, said via e-mail. "They see demand-driven strength in prices through the next 4-5 years, as the industrializing world is taking up an increasingly large portion of worldwide production."
And Deutsche Bank recently raised its 2010 target price for crude to $60 a barrel from $45, citing the increasing costs associated with bringing new oil to market from such expensive sources as Canada's tar sands and the deep water Gulf of Mexico, as well as continued strong demand.