The head of commodities research for Credit Suisse, Tobias Merath, believes that oil cannot sustain a fall below $100 a barrel. He believes once the markets test those waters, OPEC will simply turn off the spigot and curb production (Reuters):
On oil, I think the bulk of the correction is behind us…We think it can test $100 or drop slightly below it in a couple of weeks, but it should not remain below $100 on a sustained basis.
At the same time, OPEC countries are producing quite a bit of oil since March and that is apparently working. But the moment oil drops below $100, they will be quick to cut back production…We expect a recovery in oil prices in 2009. We expect prices to hover between $115 and $120 in 2009.
Apparently, while $150 oil is crippling to the world economy and a powerful impetus for alternative energy research and funding–and, therefore, frightening to OPEC–$120 oil is just fine.
Assuming Credit Suisse is right, in other words, the oil “super spike” has severely changed the expectations game. A year ago, OPEC would never have been able to intentionally sustain prices above $100 without infuriating the rest of the world. Now that $100 seems like a bargain, however, reducing supply doesn’t seem so far-fetched.
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