We’re seeing a shift in the way our clients view their daily living – suburbs and hillsides are becoming less sought after and walkable commercial districts with mass transit have held their value well (check out the rising popularity of websites such as walkscore.com!).  These demand changes, along with demographic fluctuations and the story regarding oil pricing below are sure to influence where houses prices will be over the next decade.  The importance of local knowledge and a grasp of urban development have never been more crucial for your purchase decisions.

-Derek

The oil market breathed a small sigh of relief Friday after Hosni Mubarak resigned as president of Egypt, sending prices to a 10-week low. But Charles T. Maxwell, an analyst who’s been toiling in the energy business since 1957, all but shrugged off the toppling of the dictator. He’s sticking with a bold prediction: Prices will climb to $300 a barrel in 2020, or about $225 in today’s dollars. The world simply won’t have enough oil to meet demand, he says. Barron’s interviewed Maxwell, 79 years old, by telephone from the Greenwich, Conn., offices of Weeden & Co.

Barron’s: How will Hosni Mubarak’s removal from power and Egypt’s political unrest affect the global oil market?

Maxwell: Even though Egypt is an oil producer, it is a small one, producing a little bit less than 1% of the world’s total. But what is so critical is that roughly 30% of the Arabs in North Africa and the Middle East live in Egypt. So it is terribly important as a population center, and also as the center of publishing, education, medicine, technology and manufacturing in that region. In so many different ways, Egypt represents leadership in various civilized activities in the Arab world, and in keeping the peace in the Middle East, thanks to 30-plus years of agreements between the Egyptian state and Israel. It’s been critical to keeping the Middle East stable. So it is in this wider context that Egypt is so important, should its government change over to, say, an Islamist party like the Muslim Brotherhood, and should it in some way begin to default on the diplomatic agreements it has already made.

There’s been a lot of talk about the Suez Canal. Is it still significant in shipping oil?

It isn’t as important these days. It was very critical in the famous days of the past. These days, the Suez-Mediterranean pipeline does about 1.1 million barrels a day, and the canal itself does about 1.9 million. So putting them together, that’s three million barrels a day out of a total of about 88 million barrels around the world every day. So we are looking at about 3.5% of world production. If the Suez Canal were cut off, we could easily get over the problem, but we would have to pay more to carry it around the bottom of Africa, with an extra 12 days on the ocean. I don’t think the Suez Canal will be shut down, but if that were to happen, it wouldn’t be a disaster.

Oil prices have moved a lot higher lately. West Texas Intermediate, for example, is at around $87 a barrel, versus a shade over $71 last August. What’s driving that increase?

There are various reasons given for that, including the economic recovery, which is requiring more crude oil. Another reason would be that Russia had been increasing its production, until just recently, to about 10.2 million barrels a day. But currently they aren’t expanding any further, and Russia’s oil production will probably be flat or a little down. So that contribution appears to be over for the moment, not for the longer term. And the political problems in Nigeria are coming back. But I think these reasons for the recent spike in oil prices pale in comparison to the true long-term cause, which is that demand for oil continues to rise from greater economic activity around the world. Societies that are modernizing are using more oil for cars, trucks, airplanes and boats and, suddenly, we are back on that growth-of-demand upward ramp. It is pretty obvious to analysts and to the general public that oil companies are straining to get more oil to meet the world’s needs. And the question behind it, of course, is this: In three or four years, will the ability to produce the extra barrels needed be met? The answer is increasingly a question mark, and that pushes higher and higher the present values of the oil in the ground and the desire of holders of oil to add to their supplies.

What’s the current capacity for global oil production?

We are producing about 87 million to 88 million barrels a day, and I would put global capacity at another five million barrels on top of that. So our capacity is about 92 million to 93 million barrels a day, and I see our capacity as reaching perhaps as much as 95 million barrels a day at the peak in about four or five years, probably around 2015. But I think production will go very modestly above that point, if at all, and, in effect, we will reach a plateau. It will be a little bumpy in 2015, 2016, 2017 and 2018. But by 2020, the first signs will become very evident that we can’t go any higher than that in production. So we will begin to settle very slowly and gradually in a world in which we need more oil each year, but we can’t get more.

How high will the price of oil go?

By 2020, I’m looking for about $300 a barrel, which is closer to $225 a barrel in today’s dollars. So it reaches a production plateau around 2015 or 2016 and stays flattish on a bumpy plateau until about 2020, at which point output starts to recede slowly.

What about the impact of increasing production?

Let’s say you increase production by half a percent. But if your demand is up by 1½%, you still don’t have enough to meet your full demand, so then prices have to step in to ration supplies and, in effect, destroy the incremental production by making 1% of the use [too expensive] for those people who can’t afford it.

via Whatever Happens in Egypt, Oil Will Hit $300 by 2020 – Barrons.com.