Oil prices to fall as much as 30%, forecaster says

(AP Photo/Franklin Reyes)
(AP Photo/Franklin Reyes)

Oil prices will fall as much as 30 percent by 2016 because of rising production and fuel efficient vehicles, according to a prediction from forecasting group Kiplinger.

The group projected that U.S. benchmark crude will cost $65 to $75 per barrel by 2016, compared with Tuesday’s closing price of $95.32 on the New York Mercantile Exchange.

Other organizations, including investment banks and and research firms, also have forecast oil price declines, though other projections have been around $85 as a long-term price.

Kiplinger said rising U.S. production, coupled with lower U.S. consumption of petroleum products would push prices down.

“The U.S. is playing a major role in the shift,” Kiplinger said in its weekly letter published Friday. “Domestic oil use is down 11% from its peak in 2005, thanks to more gas-sipping cars and trucks. Meanwhile, output is up 30% since 2008, the legacy of tremendous gains in drilling technology that have revitalized the U.S. as a major producer. The net effect is huge, equal to the infusion of 4 million barrels of newfound oil supplies a day.”

The change would come as businesses large and small are increasingly turning to natural gas, which is cheap in the United States as a substitute for petroleum products, Kiplinger said.

Oil prices: Saudi Arabia remains key to oil prices, despite U.S. production surge

“In the U.S. and China, truck fleets will use more liquefied natural gas…and less diesel,” according to a note from Kiplinger. “In the Middle East, new gas wells will feed power plants, freeing up more oil for export. And plastics makers will increasingly switch from oil to gas as a chemical feedstock.”

Kiplinger predicted that natural gas prices would rise, because of increasing demand, from around $4 per million British thermal units today to between $5 and $6 in a few years.

But other factors could play a role in keeping oil prices high.

Members of the Organization of the Petroleum Exporting Countries already have  begun to react to a growing world oil supply that could push down prices.

Though Saudi Arabia produced about 9.3 million barrels per day in April, the country has begun to tighten production to keep prices high, according to the Eurasia Group.