NEWPORT BEACH, Calif. — Be prepared for oil prices to remain high, and with that, expect slower growth, higher long-term interest rates and higher inflation.
Mark Kiesel, an executive vice president at Pacific Investment Management Co., Newport Beach, Calif. — the world's largest bond manager with $400 billion in fixed-income assets under management — said oil prices will stay high longer than most experts think.
Even though forwards markets are indicating that crude oil prices will fall $7 a barrel over the next year from today's stratospheric level of nearly $55, Mr. Kiesel thinks there are sound reasons oil prices will remain strong over the next three to five years.
• Oil is priced in dollars. With the U.S. government running high budget and trade deficits, the dollar remains on a secular decline. In the last 2.5 years, oil prices went up 29% in dollar terms — but only 12% in euros. "Oil is very much a dollar play," Mr. Kiesel said.
• Development is booming in China. And, with 20% of the world's population, China consumes only 7% of the world's crude oil — compared with 31% of its coal and 27% of its steel. China's still got a lot of catching up to do, he said.
• The United States is dependent on foreign oil