The revival in Iraq's oil production could keep oil prices low for several years: that is the message from a Royal Bank of Scotland note on the global oil market.
As the last of Iraq's oil contracts have been awarded, RBS predicts that Brent crude could fall back from its current level around $73 to as low as $64 by 2013 and $50 three years later as Iraq production soars.
Iraq is sitting on the world's third-largest oil reserves and with contracts ' containing production commitments - awarded to world oil majors like BP, Shell and ExxonMobil, its oil output could expand fivefold to 11.75m barrels a day by 2017.
'Investors expecting the imminent return of oil price rises fuelled by increasing Chinese demand may be disappointed,' says David Cline, RBS's oil and gas analyst. 'Instead, the rehabilitation of Iraq may dominate oil markets and weigh on prices for much of this decade.'
The outlook still clouded by concerns over the prospects for global growth and sluggish fuel demand, but the RBS prognosis is gloomier than most. The oil futures market is pricing in a rise for Brent crude to $94 by the middle of the decade while other independent forecasters are averaging about $82 a barrel by 2013.
Oil prices ended January down more than 8%, pressured by data showing tepid energy demand in the United States, worries about fiscal turmoil in smaller euro zone countries and a stronger U.S. dollar.
Ironically, added the RBS report, while investors in likes of BP and Royal Dutch Shell will have been cheering as the oil majors won their slice of the Iraqi cake, oil stocks could ultimately suffer from the depressive effect on oil prices.
RBS pointed out that BG Group is better protected than its peers: the company's operations are skewed to gas, rather than oil. It has the best forecast output growth in its sector and its big Brazilian oil and gas finds will be commercial even at prices of $40 a barrel.
Persistent takeover speculation should also provide continuing support to the shares.
The major oil companies report this week, led by Exxon Mobil, which today announced a better-than-expected 23% decline in its fourth-quarter profit on Monday. Exxon said weak demand for fuel during the economic slowdown hurt its refining business.
BP reports results on Tuesday and Royal Dutch Shell follows with its data on Thursday. Shell said on Sunday it shut three oil flow stations in Nigeria's Niger Delta after a key crude oil pipeline was sabotaged.