The Economist has basically said it!
In 2011 the fundamentals of supply and demand are likely to exert more upward pressure on prices. Francisco Blanch of Bank of America Merrill Lynch reckons that global demand is set to expand by 1.4m bpd as growth in developing countries offsets a decline in demand from sluggish rich countries. As a result he expects prices to hit $100 next year and to average $85 a barrel over the course of 2011.
Looking still further out, the booming economies of China, India and other developing countries are set to need much more fuel in years to come. The rich world should eventually rediscover its thirst, too. Non-OPEC supplies, which have grown in recent years, may start to decline in 2012. New wells will fail to plug the gap left as older fields dry up, despite the investment that 2008’s higher prices encouraged. OPEC is likely to respond by calling on its spare capacity—belonging mainly to its biggest member, Saudi Arabia. OPEC is tight-lipped about how much it has on tap. Some estimates put it at about 5m-6m bpd, though others think the amount that could readily hit the market is much lower.
Such calculations determine estimates of when demand will begin to outpace supply, a circumstance that, just as in 2008, is likely to cause precipitous price spikes. Jeffrey Currie of Goldman Sachs reckons that demand could be “bumping up” against capacity in 18 months. Other analysts with greater doubts about global growth and more optimism about OPEC’s capacity give it four years or more. Given the havoc of 2008 neither OPEC nor oil buyers are likely to greet the moment with a party, let alone a run of special stamps.