Tags: Blanch | oil | plunge | 50

BofA’s Blanch: Oil Could Plunge to $50 in Next 2 Years

Wednesday, 19 Dec 2012 11:21 AM

By Dan Weil

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U.S. crude oil could drop to $50 a barrel in the next two years, according to Francisco Blanch, head of global commodities research at Bank of America.

That would amount to a 43 percent dive from Monday’s close of $87.97 for January West Texas Intermediate crude futures on the NYMEX.

Blanch’s forecast is based on excess supply. “[W]e're producing a lot of crude oil in this country,” he tells CNBC. “We saturated the transportation system, and I think we could saturate the refining system in the next 18 months."

Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.

U.S. crude output hit a 15-year high in September, thanks largely to the increased use of hydraulic fracturing, according to the latest report from the U.S. Energy Information Administration.

Output averaged almost 6.5 million barrels daily in the month, up 16 percent from September 2011.

With domestic demand sluggish, either production will have to slow down, or the government will have to permit more crude exports, Blanch says.

Interestingly enough, exporting crude could actually be a negative for the economy, Jonathan Haughton, an economics professor at Suffolk University, tells The Boston Globe.

That’s because foreigners would have to buy dollars with which to purchase the oil, pushing up the greenback’s value. And a stronger dollar would make our exports of all products more expensive, erasing the positive impact of the crude exports.

Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.

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