Wednesday, 21 May 2008!
HandWritten on; 18:26
May 20, 2008, 11:48 am
How High Will Oil Go?
Posted by David Gaffen
As crude oil continues to grind higher, targeting $130 a barrel, and perhaps soon $140, $150, et cetera, analysts have steadily revised expectations for the commodity, taking into account the incredible gains mustered by oil during the last few months.
Still, few are expecting oil to average anywhere near where it has averaged in the last few weeks — most still believe oil will average in the low $100s for 2008, suggesting that most believe a correction, one way or another, is on the way.
Oil Forecasts, High to Low
Firm, 2008 Avg. Price
MF Global, $152
Goldman Sachs, $141
Credit Suisse, $120
Societe Generale, $115
Deutsche Bank, $105
Merrill Lynch, $101.45*
BMO Capital Markets, $100
Alaron Trading, $97
Merrill forecasts are an average of Q1 average of $97.78, and firm forecasts of $103, $110 and $95 for the 2nd, 3rd and 4th quarters.
The most bullish of those MarketBeat contacted was Scott Magnuson, senior commodity advisor at MF Global, who expects oil will hit $150 a barrel by July 4 and $185 a barrel by Thanksgiving.
“The main problem with crude oil prices is that world oil production has been stagnant for over two years now,” he writes in an email. “Global demand however continues growing, and U.S. consumers are reluctant to make any significant lifestyle changes or significant efficiencies.”
Goldman Sachs has been on record for steady bullishness, with its recent revision to its forecast, now at $141 a barrel for 2008. And Credit Suisse comes close, as the firm now expects an average $120 per barrel for 2008.
The argument for oil’s decline is often predicated on the notion that the U.S. economy (and others) will eventually be unable to afford oil prices at current or higher levels. Phil Flynn of Alaron Trading says his firm is projecting an average price of $97 a barrel, which implies a big correction — through Monday’s trade, crude’s average price has been $104.46 a barrel.
Government subsidies around the world are in part offsetting some of these costs for now, helping to maintain the price of oil. While demand for gasoline and other products has diminished somewhat, it has not dampened the crude market.Of late, crude was traded at $129.17 a barrel, up $2.12 on the day.
Review: Here are three facts about oil: it is a finite resource; it drives the global transport system; and if emerging economies consumed oil as Europeans do, world consumption would jump by 150 per cent. What is happening today is an early warning of this stark reality. It is tempting to blame the prices on speculators and big bad oil companies. The reality is different. Demand for oil grows steadily, as the vehicle fleets of the world expand. Today, the US has 250m vehicles and China just 37m. It takes no imagination to see where the Chinese fleet is headed. Other emerging countries will follow China’s example.
Meanwhile, spare capacity in members of the Organisation of the Petroleum Exporting Countries is currently at exceptionally low levels, while non-OPEC production has equally consistently disappointed expectations. While the demand is increasing exponentially, the oil supply is not keeping up, resulting in shortage and thus driving up the price of oil.Labels: econs, Ernie Chia Ern
