Many are weighing in on the future of oil prices and the impact that it has on the US and the global economy. Some experts are under the belief oil will continue to drop while others believe it is starting to bottom out and will soon stabilize. Three experts with different takes on the current and future state of crude oil prices debated yesterday on CNBC’s “Squawk Box.”
Economist Andy Xie told CNBC that the price of oil will stay around $60 a barrel for the next five years.
According to Xie, a former IMF and Morgan Stanley senior economist, China’s unbelievable growth caused the price of oil to rise so high. Xie said China became a massive industrial machine due to a 15- year super cycle and is now starting to cool down which is dragging down the price of oil.
“When China goes into normal situation, I think that the oil price will become normal, too, so $60 would be the normal price for the next five years or so,” according to Xie. He goes on add that China will face deflation and sluggish demand over the next four to five years, but expects households to continue to spend and exports to perform well.
In September, Xie predicted oil would fall to $60 a barrel because the energy demand in China had tapered off. On September 29th, WTI crude oil closed at $92.61 a barrel, compared to $59.15 on Thursday, a 36 percent decline.
Richard Mallinson, a geopolitical analyst from Energy Aspects disagrees with Xie’s forecast, he predicts that the demand will grow the longer oil prices stay low.
Mallinson states on CNBC, “China isn’t going to be the main center of demand growth anymore. Its economy is rebalancing and the growth rate is slowing, but there are other Asian economics, there are other parts of the world, and lower prices will unlock that demand growth. It will just take a bit of time to emerge.”
According to Mallinson, many non-OPEC supplies won’t be viable at $60 a barrel so prices won’t balance at that level. Consequently, producers will scale back projects decreasing the supply that should offset the decline in prices.
According to Jeremy Zirin, chief equity strategist for Americas at UBS Wealth Management Research, UBS expects over the next 12 months oil will stay in the $65 to $75 a barrel price range.
Zirin added on CNBC that the US economy will strengthen from the low oil prices by adding two to three-tenths of a percentage to gross domestic product (GDP).