Wednesday, January 10, 2007

How low can oil go?

How far will oil prices drop, and what effect would that have on our local real estate market? There is a theory that part of what has driven our market is wealthy Albertans profiting from high oil prices buying up BC real estate.

Oil is now down to around $55 per barrel from a peak of $77 in late august. In the last week alone prices have dropped $5.

There's an article on MSNBC today about the lower oil prices, some of the factors behind them and predictions for the future.
There a few oil analysts who believe oil prices could be headed for a much bigger fall —especially as heavy investment in new production during the recent price run-up begins to bring a big increase in supplies to market. Even at $55 a barrel, that investment in new production will remain strong, according to Peter Beutel, who follows the oil market as president of Cameron Hanover.

“We will find a lot more at these prices,” he said. "A proven barrel of oil is how much you can get at today’s price. I believe we have that a lot more oil on this planet than people believe. And we are going to find it over the next few years."

Beutel thinks oil prices could fall as low as $20 a barrel in the next 4 to 8 years before beginning to rise again.

So anyone think there's a chance in hell of seeing oil at $20 a barrel in the next 4 to 8 years? And what sort of effect would that have on our real estate market? I could see lower gas prices (along with improved roads) possibly driving demand in the suburbs, but I wonder what sort of effect lower gas prices would have on the income side of the equation, particularly if there's anything to the 'rich Albertan' theory.
         

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