Oil prices to rebound in second half of 2015: Conference Board

While some experts try to call the bottom for oil, others predict the price can only up from here as cheaper gas encourages consumers to buy bigger vehicles and drive more.

The argument is that a growing demand for gas, alongside the industry’s recent capital spending cuts that could curb long-term supply, should help oil prices climb in the foreseeable future.

A new report from the Conference Board of Canada forecasts oil prices will start to rise later this year.

“There won’t be much movement in the first half of 2015, and $100 per barrel oil isn’t coming back any time soon. But we expect world oil prices to rise above $60 by the end of this year,” says Kip Beckman, principal research associate, economic services at the Conference Board.

The price of oil has fallen below $50 (U.S.) per barrel, a more than 50-per-cent drop since the summer.

Gasoline prices have dipped as a result and Beckman says that’s inspiring consumers to buy bigger vehicles, which is expected to help drive up demand for fuel.

“History is already repeating itself,” he notes, pointing to growing sales of SUVs and pickup trucks in the U.S., the world’s largest economy.

Canadian consumers are also in on the trend. According to the latest auto sales data, light truck sales were up nearly 20 per cent in December compared to the same month last year, compared to an 11-per-cent boost in passenger car sales.

Sales of the gas guzzling Dodge Ram truck increased 51 per year-over-year, set an all-time monthly record and became second-best selling vehicle in Canada, Scotiabank economist Carlos Gomes said in a recent note.

“Buying activity continues to be buoyed by improving economic fundamentals, including a strengthening labour market, low interest rates and the recent sharp slide in gasoline prices,” he said.

2014 was also a record year for auto sales in Canada, with 1.849 million vehicles sold, and industry experts such as Gomes predict 2015 will be even better.

And while lower oil prices are expected to put a dent in Canada’s economic growth, especially in oil-rich provinces such as Alberta, economists say that could be offset by increased activity in manufacturing centres such as Ontario and Quebec, which benefit from cheaper fuel and a lower Canadian dollar.

Beckman says low oil prices will also stimulate the global economy, and in turn fuel demand for oil, helping prices recover.

“While oil-producing countries such as Canada are hurt by tumbling oil prices, most of the world’s largest economies—including the United States, India, and China—are net importers of oil, and their GDP growth will receive a boost from lower energy costs,” he says.

While it’s hard to imagine a bounce back today given the global oversupply of oil, Beckman believes the oil market will relive its familiar past.

“History shows that, more often than not, tumbling oil prices are quickly followed by a sharp upturn,” he says.

“Bottom Line: Enjoy gas at 95 cents a litre or less, [in some parts of Canada] but don’t get too comfortable with it.”