Oil’s held firmly around the $45 marker for a few weeks now, lifting slowly but steadily from December lows. Most traders and analysts are anticipating cuts in production from OPEC to drive the price higher. But it’s still part guessing game.
Nouriel Roubini told the New York Times that “The twin engines of growth were the U.S. and China; the U.S. has fallen off and China has stalled, to put it mildly. In my scenario, oil will fall lower. I would not be surprised if oil even went to $20, if the recession is more severe.”
The Times found others who believe oil might sink. LCM Commodities reasons that historically we’ve been slow to regain demand. Before 1973’s energy crisis, demand growth was 8% per year for oil, but a decade later growth slowed to just 4% or so. If you believe the past is an indicated of the future, then there is precedent to think demand won’t grow voraciously this time either,
As for OPEC’s role, well, relying on OPEC for production cuts might be a mistake, as they’ve only made 80% of the cuts they promised. Qatar said the cartel needs to comply 100% before any new cuts are made, which drove oil’s price down slightly today.
In blunter language, John Doerr, venture capitalist at Kleiner Perkins told the Wall Street Journal last week that OPEC is untrusthworthy:
I took my first trip to the Middle East a couple of months ago, and I met with one of the ministers in charge of — I’m not going to say which one — a great big fund, and I asked him, “So, what’s your forecast for the price of oil?”
He said, “This is going to disappoint you. I think it’s going to be $30.” I think at the time it was $42 or something. I was really crushed, and I said, “Why? OPEC has declared that oil will be $50 to $60, that’s their target.” And he said, “Right, but they all cheat.”
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