Oil Prices to Heat Up Slowly

Lord Abbett says that a global recovery wouldn’t cause prices to rocket.

OIL PRICES, though much less frightening than they were a year ago, have nonetheless shown enough volatility of late to feed the zeal of both the energy bulls and the energy bears.

With good prospects for a global economic recovery over the next 18 to 24 months, the bulls will likely win the debate, but not the extremists, since probabilities also favor only tepid growth. A price tendency toward $80 a barrel seems likely to dominate this future.

…Looking beyond 2012, questions of capacity haunt the analysis — not the old “peak oil” scares of last year but the more prosaic issues of maintenance. The declines in price and demand during the past year have already put much exploration on hold, delayed development spending, and discontinued several projects.

Cash-strapped Russia, in particular, has cut out just about all exploration, though recently Moscow did invite Royal Dutch Shell (ticker: RDSB) to participate in new leasing in the Sakhalin Island development. Even more significant, perhaps, is that Russia has neglected the maintenance of existing fields, which will limit the draw from those fields for years to come.

Barron’s