DALLAS — At the Armbrust Aviation Group’s 2008 Jet Fuel Conference & Exposition held here in late February, the story was focused around high fuel prices and their causes. But despite being asked for 2008 forecasts, some presenters tried ducking out of making any firm predictions — a testament to the current volatility of the market. Looking forward, officials updated attendees on ongoing synthetic fuel initiatives.
“A year ago ... I made a prediction that came true, and I want to take credit for it,” says Ben Brockwell, director of data, pricing, and information services at OPIS, a comprehensive source for petroleum pricing and news. “When Britney Spears shaved her head, I predicted her hair would grow back. And indeed, her hair did grow back.
“I’m not in the business of trying to predict oil prices, but I am in the business of trying to help you understand where it may be.”
Brockwell takes a sunnier view of fuel pricing than some of the other panelists.
“I take a longer term view with oil prices,” Brockwell says. “A lot of times we get caught up in the moment and forget about the lessons of the past. Since 1973, we’ve had three important down cycles that have taken the price of crude oil to a dollar a gallon. The latest was 1999, and before that it was 1986, and before that it was in the early ‘70s. These cycles have lasted about 13 years.
“If that remains true for our current market, I would look at a period of 2010 to 2012 where we may see another correction. And so my view of the market is, sometimes we don’t look at subtle changes. We live in the moment. And the moment right now is ... it’s $100 crude oil, and people are saying it’s going to go up to $120 and $150.”
But Brockwell says it should get better. “I suspect we’re going to have cheaper prices on the horizon.
“My view of 2008 to 2009 is that transitions are underway. I think these are transitions that most people are not looking at.”
Brockwell says current pricing is primarily being driven by speculators, and the federal government’s habit of reducing interest rates, which makes speculating cheaper.
“Oil speculation is a cheap … game to keep playing, and frankly it’s been a very profitable game over the last five years,” Brockwell notes.
He says that in 2004, many people said that the oil price increase was caused by demand exceeding supply in the United States, India, and China. But that equation is shifting.
“If you look at the difference between demand growth worldwide and capacity growth worldwide, capacity has started to grow at a faster rate than demand,” Brockwell says. “I think that is going to change even more in the next two years, despite all the infrastructure issues, because there’s a lot of money being invested in the capacity.”
Brockwell comments that demand growth is flat in industrialized countries and slowing in other areas, due to high prices.
“There’s also a transition taking place in transportation,” Brockwell says. “Americans are now demanding fuel efficient vehicles. They are tired of paying $3 a gallon for gasoline. This is a transition, it doesn’t show up right away in terms of market dynamics.”
Meanwhile, speculators are turning their attention to other markets.
“Just looking at some of the numbers, a lot more speculative money is now going into other commodities like soybean, corn, agricultural products,” Brockwell says. “It’s happening with some of that being driven also by energy, but don’t misread this statement. There’s still a lot of money going into crude oil. It just doesn’t look to be as sustained as it has been in the past.”
Speculators’ shifting attentions may be caused by the change in fuel composition, particularly from government-driven demands for biofuel, which is changing the complexion of diesel, Brockwell says. “This definitely creates infrastructure problems; ultimately it produces hydrocarbon and petroleum demand.”