Oil prices for 2007 - Jeff Rubin (CIBC).....Higher oil and gas prices, supply crunch to offset oilpatch's tax losses: CIBC
CALGARY (CP) - A looming tightness in oil and natural gas supplies across North America promises to mitigate the threat of impending carbon emission taxes on oilpatch profits, a CIBC World Markets analyst said Tuesday.
Commodity prices already are starting to climb on strong demand and concerns about a supply crunch, Jeff Rubin, chief economist with CIBC World Markets said. The investment bank is forecasting an average oil price of US$70 in 2007, rising to US$75 per barrel by the end of the fourth quarter.
"If we're going to be talking about $75 oil, valuations of oil companies are going to rise even with putting a price on carbon emissions, which is becoming more inevitable every day," Rubin said.
The CIBC World Markets chief strategist said estimated carbon costs of $30 per tonne of emissions translate into about $1.25 per barrel to $1.50 per barrel, regardless of the price of crude. And the higher the price of crude, the less impact.
Rising demand for oil from energy-hungry Asia and a rebounding U.S. economy could meet a supply squeeze later this year, CIBC said in its Canadian Portfolio Strategy Outlook Tuesday.
Civil unrest in oil-rich Nigeria has already shut in about 400,000 barrels of crude a day, adding to concerns about political unrest in the Middle East disrupting supply.
And U.S. tropical weather specialists are predicting significant hurricane activity in the U.S. Gulf of Mexico, which could put almost 1.5-million barrels per day of crude oil production and 10 billion cubic feet per day of natural gas production at risk.
Rubin pegged natural gas prices as between US$7.50 per million British thermal units and US$8 per million BTUs this year, rising to US$9-9.50 per million BTUs in 2008.
Two years ago, 90 per cent of natural gas supply from the U.S.
Gulf region was shut down for months after hurricanes ravaged offshore and onshore production sites.
After natural gas prices hit record highs, a cool summer and warm winter failed to draw down supplies.
Natural gas prices then tanked in mid 2006, briefly hitting $4 per million BTUs, before creeping back to around $7.25 in March.
Rubin sees demand for the clean burning fuel rising significantly, citing a major Texas utility's recent cancellation of eight of 11 planned coal-fired plants.
The utility plans to pick up the 18,000 megawatt-shortfall through natural gas-fired plants.
"If this is really an indicator of the difficulties of getting coal-fired capacity in the United States, that is, in the near-term, a pretty strong bid for natural gas," Rubin said.
Approximately 49 per cent of electricity in the U.S. is coal-fired, compared to 17 per cent in Canada.
CIBC expects at least two-thirds of new coal-fired plants slated to come on line in the U.S. by the end of the decade will be shelved due to tighter environmental rulings.
Their replacement natural gas-fired generation should raise U.S. consumption by about four per cent, Rubin said.
"It's not quite as bearish as these guys would want to make out," he said. "I think anything with gas having a $7 handle in it, or higher, and oil at $65 is pretty constructive for the oilpatch."