With global GDP growth set to accelerate in 2H2013 and limited supplies, there is a growing risk of Brent prices spiking to $130/bbl this year, said Bank of America Merrill Lynch in a report.The developed world has seen a surge in fuel-efficiency in transportation. As baby boomers exit the "prime driver" age band (15-65), oil demand will decline further.
“But global population in the prime driving age band continues to grow strongly due to emerging markets.” the report noted.
Countries like China still have very low passenger cars per capita ratios compared to advanced nations, and most new car sales will continue to contribute to fleet growth rather than replacement vehicles. Given the supply constraints, Brent crude oil prices will likely have to stay high to adjust demand down.
Developed Markets oil demand cuts continue
With non-OPEC oil supply growing by an average of 480 thousand b/d per year over the last decade, there are only two ways to satisfy this level of demand. Either OPEC provides the missing barrels, or rising prices have to force more efficiency and substitution.
If OPEC does not expand output, oil prices need to increase and ration out the weakest links in favour of the emerging forces. ''
For instance, the big four economies in the European Union (Germany, France, Italy, and the UK) listed among the world's 10 largest oil consumers in 1995. Today, their spots have been taken by Saudi Arabia, Brazil, and India.
“Only Germany remains in the club, though for how long?” the report asks.
Source: BofAML (Bank of America Merill Lynch)