Oil Could Hit $100 A barrel - Political Forum

CHUQ · 07-31-2007, 07:12 AM

How wilkl this effect the economy of this and other countries, if it happens?

July 23 (Bloomberg) -- The $100-a-barrel oil that Goldman Sachs Group Inc. said would prevail by 2009 may be only a few months away.

Jeffrey Currie, a London-based commodity analyst at the world's biggest securities firm, says $95 crude is likely this year unless OPEC unexpectedly increases production, and declining inventories are raising the chances for $100 oil. Jeff Rubin at CIBC World Markets predicts $100 a barrel as soon as next year.

SOURCE

Will make the Hummer a very unattractive vehicle.

donsutherland1 · 07-31-2007, 10:53 AM

CHUQ,

I don't believe Mr. Currie's forecast of $95 per barrel crude oil later this year is likely to verify. With OPEC signaling possible production increases in recent weeks and world economic growth running close to IMF forecasts, it would probably take a fairly significant geopolitical shock to send the price of oil to $95 per barrel this year. No military strikes on Iran are likely this year. So far, Al Qaeda has not really been able to target Saudi oil production facilities or Persian Gulf shipping in a significant way nor has it targeted the industrial world's refining infrastructure. Therefore, by year's end, it is probably much more likely that the price of oil will have remained below $95 per barrel. Instead, some fluctuations at or above $80 per barrel might be likely. In the longer-term, higher energy prices are more likely, as production and refining have difficulty matching growth in demand. At the same time, down the road, the implications of Iranian hegemony in the Middle East and/or Iran's pursuit of nuclear weapons could increase the risk of a major geopolitical shock.

The proposed arms sales to Saudi Arabia and the Gulf states could, at least in the near-term, delay Iran's ability to gain regional dominance through conventional forces. However, it remains to be seen whether the Congress will approve the proposed arms sales. Moreover, with U.S.-Russia ties fraying, Russia might well seek to "balance" the U.S. arms sales with sales to Iran, unless the U.S. takes a more flexible approach with respect to Russia's critical interests. Nonetheless, these are events whose implications are not likely to play out until after 2007.

Finally, it seems that summer has become a time for "doom and gloom" predictions concerning near-term energy prices in recent years. In fact, on June 14, 2006, The Wall Street Journal reported that oil economist Philip Verleger, Jr. predicted that the retail price of gas could reach $6 a gallon that year. That forecast did not pan out.

Later, on August 21, 2006, in the same newspaper, Mr. Verleger was quoted as suggesting that crude oil prices could crash. "There is no floor. The price could fall to single digits," he suggested. Mark Vonderheide, global head of oil trading for Deutsche Bank AG echoed Mr. Verleger's thinking, though he was not as aggressive, simply stating that "it's very likely we're headed for much lower oil prices." Given oil stocks at the time and production-consumption data, those forecasts were not very realistic barring a substantial global economic downturn for which there was no meaningful supporting data at the time.

Bottom line: Be wary of sensational short-term forecasts. More than likely, they won't prove correct. Invariably, the aggressive near-term predictions have often failed to materialize, precisely because one needs relatively low probability-high impact events to bring such predictions to fruition.

Wheeldog · 08-01-2007, 02:36 AM

Oil prices are in constant flux going up and down for a host of reasons. However, the long-term trend has definately been up for the past several years. World oil consumption has been increasing at about 2% per year. That may not sound like much, but it represents huge quanties of crude oil being pumped and shipped around the globe. As the economies of India and China develop, it will not be possible to meet the growing demand. Ultimately, that means prices will continue to climb.

There is one way that could result in a major decline in the cost of oil. It is called "demand destruction." It means that consuming countries would substantially cut back on their use of oil because of an economic recession - or worse. If the U.S. or other major oil consuming countries had a major downturn in their economies it would result in people having less money to travel and buy items that use oil in the manufacture and transport. This happened in the 1970s and early 80s causing oil prices to drop sharply. This is a painful way to bring down the cost of oil - and it does not solve the underlying problem.