US Oil Headed for Steep Drop to $75: Pro
Writer for CNBC.com
The price of West Texas Intermediate crude oil is set to plummet to $75 per barrel as increased use of shale oil in the U.S. blots out demand for WTI, one expert told CNBC.
Andrew Su, CEO of Sydney-based commodities trading firm Compass Global Markets, gave a bearish forecast for WTI on CNBC's "Asia Squawk Box" on Tuesday. He said its value would drop around 18 percent by the end of the second quarter and even further beyond that time.
"Shale oil is the reason why oil prices fell last year and the reason why it will continue to fall in the next few years," said Su.
"Shale oil will reshape the way that the entire oil industry is run, and the U.S. will become an exporter of oil in next five to 10 years. That will have a significant impact on the U.S. and the global economy," he added.
(Read More: California's Monterey Shale, the Next Oil Boom?)
Shale oil—also known as kerogen oil— is an unconventional form of oil extracted from shale rock formations, only made possible in recent years through technological breakthroughs.
The revolution in shale oil and gas production could give the world's largest economy energy independence and represents a substantial threat to the competitiveness of oil.
According to a PricewaterhouseCoopers study published in February, shale oil will contribute 14 million barrels per day toward the global oil production by 2035, roughly 12 percent of today's supply.
Also putting downward pressure on the price of WTI, which on Tuesday was trading at around $92 per barrel, is falling global consumption levels, Su said.
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"Global crude oil consumption is falling to new lows, particularly in the U.S. This is because crude oil is used to produce gasoline, and we are seeing a growing trend away from gasoline-fueled vehicles towards hybrid vehicles," he said.
Oil demand in the U.S. last year fell to its lowest level in 16 years, down 2 percent from 2011, the International Energy Agency reported at the end of February. The decline was blamed on the weak economy, high unemployment, growing vehicle efficiency and high fuel prices.
Su said the ongoing rally in the equities market, which has taken major trading indexes to multi-year highs this year, has proven to be a damper for commodities markets. A continuation of this upward trend has the potential to prompt a violent shock to commodity prices, he added.
(Read More: How the US Shale Gas Boom Could Derail China)
"We could see a bigger and more violent reaction [in commodity prices] if equities continue to go higher and investors start to shift assets around more. That's what makes us concerned about what's happening with the equity markets and the impact on commodities," he added.
Commodities have suffered from a lethargic performance in recent months—the price of gold has been correcting since October and has since lost nearly 12 percent in value. WTI prices have slumped from around $97.5 per barrel to close to $92 a barrel over the past month.