Brent Crude Capped at $140 This Year, $175 in 2017, BofA Says

The upper limit for Brent crude will rise from $140 a barrel this year to $175 in 2017 because of constraints on supply, Bank of America Corp. estimates.

Brent, trading near $117 a barrel in London today, will remain in a price range of $100 to $130 through 2015, supported by rising production costs, increasing budgetary needs in OPEC nations, and stimulus measures by the U.S. Federal Reserve, the bank said in an e-mailed report. Brent won’t fall to less than $80 a barrel until 2017 because any plunge in prices would boost demand, it said.

“Significant non-OPEC supply constraints outside North America and expanding OPEC budgets will likely create a firm floor on Brent,” Francisco Blanch, the bank’s New York-based head of commodities research, wrote in the report published yesterday.

Development of the non-conventional oil supplies on which the world increasingly relies, such as oil sands and shale oil, requires that prices remain at $80 a barrel or higher so as to attract investment, Bank of America said. At the same time, domestic spending by many nations in the Organization of Petroleum Exporting Countries mean that these governments require a price of no less than $80 to $90, the bank said.

While Brent prices will remain supported in the next few years, Bank of America reiterated its forecast that U.S. benchmark West Texas Intermediate crude may slip to $50 within the next two years amid booming North American supply. The bank expects 3.9 million barrels a day in supply growth from 2012 to 2017 to come from non-OPEC producers, 80 percent of it from the U.S.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net

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