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Hi all,
An article from the December 6th - 12th edition of The Economist (Finance and Economics). Excerpts:
ENERGY analysts spent the first half of the year debating how expensive oil could get. Now they are asking the opposite question. On December 2nd the price of a barrel slipped below $47, the lowest level since May 2005 and less than a third of the peak reached in July.
The main reason for the slump is the darkening outlook for the world economy. Demand for oil continues to grow in a few spots, such as China. But in most places it is falling.
Many now expect global oil demand to fall next year, and perhaps even this year—which would be the first decline since 1993. Meanwhile, several new oilfields and refineries, which were set in motion when the price seemed likely only to rise, are due to start up in the coming months, increasing supply just as demand atrophies.
The king of Saudi Arabia recently said that $75 a barrel would be a fair price—an idea that other members of the cartel have echoed with enthusiasm. Oil`s plunge has left many of them in dire fiscal straits.
Michael Lewis of Deutsche Bank argues that OPEC`s past efforts to prop up prices have succeeded more often than not. Since 1993, cuts in production have led to higher prices on three-quarters of occasions. The exceptions, however, have occurred when the world economy has slowed unexpectedly—most notably in 1998, after the Asian crisis, and in 2001, after the dotcom bubble burst. On those occasions, the price kept falling for more than six months after OPEC first began reducing its output.
If events take a similar turn this time, Mr Lewis reckons, OPEC will have to keep cutting its output for another year. The price may not hit rock bottom until early 2010. But the world economy looks less healthy now than it did in 2001, so OPEC may face even more of a struggle this time, he thinks. Deutsche Bank, for one, sees prices falling as low as $35 at times between now and then.
http://www.economist.com/finance/displayst...ory_id=12725914
Keith
An article from the December 6th - 12th edition of The Economist (Finance and Economics). Excerpts:
ENERGY analysts spent the first half of the year debating how expensive oil could get. Now they are asking the opposite question. On December 2nd the price of a barrel slipped below $47, the lowest level since May 2005 and less than a third of the peak reached in July.
The main reason for the slump is the darkening outlook for the world economy. Demand for oil continues to grow in a few spots, such as China. But in most places it is falling.
Many now expect global oil demand to fall next year, and perhaps even this year—which would be the first decline since 1993. Meanwhile, several new oilfields and refineries, which were set in motion when the price seemed likely only to rise, are due to start up in the coming months, increasing supply just as demand atrophies.
The king of Saudi Arabia recently said that $75 a barrel would be a fair price—an idea that other members of the cartel have echoed with enthusiasm. Oil`s plunge has left many of them in dire fiscal straits.
Michael Lewis of Deutsche Bank argues that OPEC`s past efforts to prop up prices have succeeded more often than not. Since 1993, cuts in production have led to higher prices on three-quarters of occasions. The exceptions, however, have occurred when the world economy has slowed unexpectedly—most notably in 1998, after the Asian crisis, and in 2001, after the dotcom bubble burst. On those occasions, the price kept falling for more than six months after OPEC first began reducing its output.
If events take a similar turn this time, Mr Lewis reckons, OPEC will have to keep cutting its output for another year. The price may not hit rock bottom until early 2010. But the world economy looks less healthy now than it did in 2001, so OPEC may face even more of a struggle this time, he thinks. Deutsche Bank, for one, sees prices falling as low as $35 at times between now and then.
http://www.economist.com/finance/displayst...ory_id=12725914
Keith