Dec. 1, 2014: Adam Pilarski, an economist for the consulting firm Avitas, predicted several years ago that the price of oil would drop to $40bbl. Few believed him.
Oil hit $66 this week, on a steady decline over the past months, and, according to an article by Bloomberg News, could be on its way to $40.
Pilarski, who originally made his prediction in 2011 at a conference organized by the International Society of Transport Aircraft Traders (ISTAT). He predicted this price by October 2018.
In an interview with Leeham News today, Pilarski concurs that oil may hit $40 soon, though he believes the low end will be in the $40-$50 range. The low price will not for the reasons he outlined in 2011 and neither will it stay at or near $40 for long.
The current slide in oil prices is due to “panic” and a desire by Saudi Arabia to “save” OPEC, the oil cartel.Saudi Arabia, Pilarski told us, is driving the prices down in order to drive out of business the oil shale producers in the US and in Canada. If oil goes to $40, the theory is that this will be below the prices US and Canadian oil producers’ break-even.
He believes oil will bounce back from $40 to $60-$80 once the up-start producers shut down and eventually to around $100, where Saudi likes prices to be.
Prices are driven more by political motives than market fundamentals, Pilarski says.
Pilarski based his 2011 prediction on changing fundamentals of the energy market, with alternative energy evolving to broader acceptance that will drive oil prices to his $40 target.
“We’re not there yet,” he told us. “This is not yet the big change I was talking about that will drive a permanent reduction in prices.”
With oil prices coming down dramatically, some wonder whether this will portend cancellations or deferrals of the large order books. We are firmly convinced it won’t, and last week engine OEM MTU said the same thing.
MTU believes retirements of Boeing 757s and aging wide-body aircraft such as the Boeing 767, Airbus A300-600 and Boeing 747-400 may well be delayed. This could also be true of aging Airbus A330s and Boeing 777s, all of which will make it more difficult to bridge the production gaps of the A330ceo and 777 Classic, and to sell the new, but slow-selling Boeing 747-8.
Odds and Ends:
787 and NTSB: The US National Transportation Safety Board issued a 110 page report on its investigation into the Japan Air Lines Boeing 787 battery fire in January 2013.
Bloomberg has this write up of the report.
Azul orders A320neo: To no surprise, Brazil’s Azul Airlines ordered the Airbus A320neo, 35 from Airbus, 20 from AerCap and eight from GECAS. Azul’s CEO is David Neeleman, who founded JetBlue and selected A320s for this airline. Azul selected A330s and A350s for its planned trans-ocean flying. Staying with Airbus for is high-capacity, longer-haul service within Brazil and South America was pretty much a given.
Azul also selected the CFM LEAP-1A engines to power the fleet. Although surprise seemed to be expressed by one observer, given that some of the A320neos are coming from mega-lessor GECAS, it doesn’t take any insight to understand that GE engines were going to come with this deal.