Oil price may double within 18 months

Russia 's Gazprom, the supplier of a quarter of Europe's natural gas, expects the price of crude oil to almost double within 18 months and to take gas prices higher with it.

Photo: Oil price may double within 18 months

"We think it will reach $250 a barrel in the foreseeable future," Chief Executive Alexei Miller told reporters at a presentation in France, adding high demand rather than speculation was the primary factor for high hydrocarbon prices.

A spokesman said the company, which is also one of Russia's largest crude producers, expected the price to hit the $250/barrel level sometime in 2009.

Gazprom exports gas to Europe at prices linked to oil products. Miller said the current gas price was $410 per 1,000 cubic metres and Alexander Medvedev, Miller's deputy, said prices were likely to rise to reflect the higher cost of crude.

Analysts said that using the $250/barrel forecast and the conversion factors cited by Medvedev at the presentation, one would arrive at a gas price of $1,500 per 1,000 cubic metres, Reuters reports.

"It's crazy ... maybe they know something we don't," said one analyst, who bemoaned the lack of analysis to back up the forecast.

The majority of Gazprom's European customers “insist” on the oil price peg, he said , since it provides stability and sustainability to their long-term contracts. Spot markets in the U.K. and U.S. made sense because those countries covered their own domestic gas demand when trading began, Medvedev said.

Oil for July delivery fell to $131.25 a barrel on the New York Mercantile Exchange at 1:55 p.m., Bloomberg reports.

When asked if $250 a barrel was a reasonable forecast, Jose Sergio Gabrielli, chief executive officer of Petroleo Brasileiro SA, Brazil's state-controlled oil company, laughed.

“This is the $3 billion question,” Gabrielli said at a presentation today in New York sponsored by the Brazil-American Chamber of Commerce. “It is worthless to give you a number. Because it is going to be wrong.”

Gazprom's gas delivery prices for Europe have reached $410 per 1,000 cubic meters, the Russian energy giant's CEO said on Tuesday.

"Today, the average price of our deliveries to Europe has reached $410," Alexei Miller told the European Business Congress in France.

Miller also said that there had been a number of comments from Europe proposing a diversification of energy supplies.

"Europe's desire to diversify energy sources is understandable. But it seems that such statements are based on the somewhat strange idea that any alternative is preferable to Russian energy supplies. This flawed viewpoint cannot be justified," he said.

The bulk of Russia's gas supplies to the European Union, which account for one quarter of the 27-nation bloc's consumption, run through Ukraine. A gas pricing dispute with Ukraine at the start of 2006 prompted Russia to briefly cut supplies off to the former Soviet republic. Europe-bound exports were also affected.

Miller also said Slovenia could take part in the South Stream project to build a European gas pipeline, RIA-Novosti reports.

Source: agencies