Oil predicted to stay below $70 after global recovery

The price of oil may remain below $70 a barrel even after the global economy recovers, and Gulf economies will be better off for it, a leading expert on the Saudi economy has claimed.

"If we come out of this in an environment where oil is $60 a barrel and our growth is still good but subdued, I think that is actually better than the over heated environment we were starting to experience," said Brad Bourland, chief economist at Saudi based Jadwa Investment.

OPEC has said it is aiming for an oil price of around $70 per barrel but Bourland, who spent nine years as chief economist of Samba Financial Group prior to joining Jadwa, said this is unlikely to happen anytime soon, given the large amounts of spare capacity coupled with a significant fall in demand for oil.

Saudi Arabia is expected to finish developing the Khurais oil field by the middle of this year, adding 1.2 million barrels a day in the kingdom's production capacity.

"Saudi Arabia by itself will have 4.5 million barrels a day in unutilised crude oil production capacity. Add another 2 million barrels around the world and we have a market in which there is over 6 million barrels a day of excess production capacity," Bourland said.

Add to that a sharp reduction in demand. To date, the US is expected to have lost over 1.9 million barrels a day in demand since the market peaked.

"That's equivalent to all of South Korea," Bourland said.

Some observers believe oil demand in the OECD bloc will never return to the peak levels experienced in late 2007.

Looking beyond the recession, Bourland sees oil trading in a range of $60 to $90 a barrel.

They could even remain at current levels after the global economy starts to pick up, he argued.

"I have increasing concern because of the loss of demand around the world that we're entering a longer term environment even when the recession is over, of oil prices staying around $40 a barrel for a long period," he said.

"We may get another wave of a commodities cycle, which pushes oil prices up, but if that wave doesn't come sooner rather than later, it will be displaced by the climate change policies around the world."

That may not be as bad for the Gulf as some people think, he added.

"Ten years ago, if I had said that an oil price environment of $40 to $45 per barrel was facing us, that would have been a dream come true."

Oil prices at that level would have the benefit of ridding the economy of the sort of spectacular but unsustainable projects that were a byproduct of the soaring energy prices of recent years.

"Is the boom over? I'm afraid it is. It was a mega projects driven boom and booms by their nature are not sustainable," Bourland said.

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