Survey Says Execs Believe Oil Will Fall Below $100

Oil and Gas executives say that the price-per-barrel of oil will drop significantly from the current high level by the end of the year, according to the results of a survey conducted by KPMG LLP's Global Energy Institute.

In this year's KPMG survey, which polled 372 financial executives from oil and gas companies in April 2008, 55 percent of the respondents think that the price-per-barrel of crude oil will drop below $100 by the end of the year. Twenty-one percent think that the price will close between $101 and $110; 15 percent think between $111 and $120; and nine percent believe it will close at above $120. And, while 44 percent felt that prices would peak by the end of the year, a further 39 percent thought that they would not peak until after 2010.

"The combination of traders moving resources into commodities and the weak dollar has had a significant role in the surge in pricing in recent weeks," said Bill Kimble, executive director for KPMG's Global Energy Institute. "However, in addition, there are underlying, issues in the energy industry, such as escalating energy demand in emerging markets and declining oil reserves, which will continue to contribute to upward pricing pressure for years to come."

Despite the fact that the majority of executives questioned expect the price of oil to fall below $100 a barrel, 44 percent plan to increase their upstream capital spending by more than 10 percent over the next year, an increase of nine percent over last year. Twenty-six percent say that investment will increase by up to ten percent, and increase of ten percent over last year. Only five percent anticipate a decrease in investment in the coming year.

"The expectation of increased investment by U.S. energy companies shows that oil and gas executives are deeply concerned about energy security," said Kimble. "The survey shows that all avenues, traditional and non-traditional, need to be supported in order to find a long-term solution."

In addition to increased investment domestically, given the state of the U.S. economy, 46 percent expect that there will be more foreign investment in/acquisition of U.S. energy companies in the coming year and 18 percent expect that it will increase significantly. Only 5 percent expect a drop.

When asked what would most enhance U.S. energy security, respondents overwhelmingly felt that opening up drilling domestically is the best option. More specifically, 43 percent said that the Arctic National Wildlife Reserve should be opened for drilling and 28 percent cited opening up drilling in the Rocky Mountain region. A further 28 percent said that investment in renewable energy (biodiesel, etc) will enhance U.S. energy security the most.

However, despite many oil and gas executives feeling that there should be more investment in renewable energy sources they still do not see it is a serious near-term solution in the energy supply equation. Last year, 60 percent said that it will not be viable to mass produce any alternative fuels by the year 2010. This year, 54 percent gave the same response when asked about the year 2015.

"While KPMG's survey showed that executives view alternative fuels as a long-term solution for the energy supply equation, they see other, existing clean air energy sources as more realistic in the next 20 years," said Kimble. "Almost all of the respondents stated that they expect natural gas to become a larger contributor to global energy supply."

When asked about natural gas' role in global energy supply, 54 percent said that it will grow significantly as a percentage of total energy supply and 37 percent it will grow somewhat. Seven percent felt that its percentage will stay the same and only one percent felt it will drop.

A significant majority, or 63 percent, of oil and gas executives believe that growing demand due to accelerated demand in emerging markets is the major contributor to the high price of oil. The second highest contributor, according to 15 percent of the respondents, was the lack of access to new oil resources, and rising exploration and development costs. Ten percent attributed current pricing to growing demand in developed markets.