Analyst Sees Stable Oil Prices for 20 Years, More SUVs and Big Cars Ahead

Americans may not be moving to small cars, hybrids and battery electrics quite as fast as environmentalists have hoped, says the forecaster CSM Worldwide.

As the climate talks get underway in Denmark, all eyes are focused on how to reduce greenhouse gas emissions. The EPA says cars and trucks are more than 23 percent of U.S. climate emissions, so that's a major focus. But to get Americans out of big gas guzzlers, CSM says, fuel prices would have to rise significantly (as they did last year, to $4 a gallon).

"But we don't expect to see $140 a barrel oil again for another 20 years," said George Augustaitis, CSM market analyst for North American vehicle sales. He said that when the price reaches $110 to $120, it becomes economical to start drilling again, and to invest in alternative sources such as oil shale and tar sands.

"Our research shows that when oil prices went above $130, oil companies were pumping out as much as possible to make money on it, which caused the supply to rise," said Augustaitis. But higher prices made the demand go down, and that depressed prices. Another factor keeping prices down is new discoveries--we should see more reserves coming on line in the next few years."

CSM's analysis of 20 more years of cheap gasoline directly counters the small but influential peak oil community, which for the most part believes that oil demand is already exceeding supply. A common theme is that many national reserves--particularly in the Middle East--are inflated. According to Texas-based energy investment banker Matthew Simmons, author of Twilight in the Desert, Saudi Arabia has a high concentration of oil production (90 percent) in five giant--and old--oil fields that are using destructive water cuts to keep up high-volume sales. "The sweep of easy conventional oil is ending," he says.

But Augustaitis sees the oil price spike as something of a bubble, akin to the legendary Dutch tulip bubble of 1624. (A trader was offered 3,000 guilders, half the price for Rembrandt's "Night Watch," for just a single bulb--and refused.) "A lot of the blame for $4 a gallon gas can be attributed to traders bidding up the price," he said.

CSM also says projects small car sales as increasingly at a snail's pace: From eight percent of total U.S. vehicle sales now to from 11 to 15 percent by 2015. "One thing that people need to remember is that we're still a nation of people who like big cars," said Augustaitis, a Ford F150 driver himself. "We like the big Fords, the Dodge RAMs, and not everybody is going to go out and buy mini cars. A large number of Americans also need trucks for jobs or personal recreation."

According to CSM Worldwide, pickup trucks will be 12 or 13 percent of the market through 2015. The larger light truck segment (including pickups, SUVs and crossovers) will stay just below half the market in that time frame, 47 to 48 percent. It is not a market, the firm says, that is headed south--one reason that GM is putting a lot of resources into the next generation of full-sized vehicles.

"If big strides are made in electric cars or fuel cells, we could see large changes," Augustaitis said. "The Volt will be a big car for the industry, because if it's successful it could lead a major switch in consumer behavior." He pointed out that since the federal government is a majority shareholder in GM, it (and us, as co-owners) could actually benefit financially from offering a major tax credit--$15,000 say--that helped sell the car.