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Oil to $60.....by January?
This seems a bit of a stretch, but who knows for sure. SeeForbes.com article from 11/12/07 below.
Oil at $100 a barrel? No way, says one defiant expert. Expect $60 crude--soon.
War in Iraq, destabilization from Turkey, unquenchable thirst for energy in Asia, millions of fuel-slurping SUVs still cruising American highways. No wonder oil prices have jumped above $90 a barrel on the new York Mercantile Exchange, on their way to $100.
Not so fast. According to some longtime observers, we will soon see $60 oil. Their argument is that the main driver of price spikes is something hardly mentioned these days: a miscalculation by the world's most important supplier, Saudi Arabia. And within the next two months that miscalculation will be corrected and oil prices will drop. "It's sure getting set up for a hard fall," says George Littell, partner at Groppe, Long & Littell, a Houston firm that has advised oil drillers and investors on the outlook for crude prices since 1955.
Here's how Littell sees it. Last year Saudi petrocrats thought demand would slacken at the same time that oil production rose from sources outside the Organization of Petroleum Exporting Nations. They cut back Saudi production from 9.5 million barrels a day in March 2006 to 8.5 million a year later in order to keep supply and demand balanced and crude prices hovering around $60 per barrel.
The Saudis got one part of the equation right. The International Energy (otcbb: IENI.OB - news - people ) Agency puts world demand at 85.9 million barrels a day, up only slightly from 2006. And among the 30 industrialized nations that make up the Organisation for Economic Co-operation & Development, demand has fallen by 100,000 barrels a day over that period.
But the Saudis overestimated non-OPEC production. While companies of many oil-producing nations are pumping cash into the declining oilfields of the North Sea, the Gulf of Mexico and elsewhere, those projects haven't contributed as much crude as analysts expected. "If demand is less, what's got to be driving the price of oil is lower OPEC production," Littell concludes. "It's a miscalculation on their part."
Check out the relationship between prices and production in the accompanying chart. The Saudis hold the key to long-term oil prices since they are one of the few exporters--Kuwait and Abu Dhabi are the others--with the ability to increase production significantly. Littell says the Saudis realized their mistake and began pumping more oil in May. At the most recent OPEC meeting on Sept. 11 members agreed to boost production by another 500,000 barrels a day starting Nov. 1. That increase included a bump in the Saudi quota to 8.9 million barrels a day.
How long before we get some relief? It takes at least a week for the Saudis to complete the paperwork necessary to ship oil to new customers, including arranging letters of credit and other financial details. Then the oil rides in a ship across the Atlantic for 30 days. Add them together and Littell expects the impact of all that additional oil to hit U.S. markets in a couple of months or so. The Saudis "didn't plan on $80 oil," he says. "They wanted to keep it around $60 and did the wrong thing."
Not everyone buys this argument. Certainly not the speculators who've been kicking up the price of oil on the NYMEX for more than a year. Leo Drollas, chief economist at the Centre for Global Energy (otcbb: GEYI.OB - news - people ) Studies in London, believes that oil prices will fall eventually, but not until the middle of next year. Refiners are still trying to refill inventories that dropped to the lowest levels since 2003 after an unexpected cold snap in North America at the beginning of this year. The increase in OPEC quotas, Drollas calls "too little, too late." Besides, he says, "We're facing a winter with low [inventories], and the market's woken up to this." The mess in Iraq, which ships 1.5 million barrels a day through the Persian Gulf, and brinksmanship by Iran may keep prices from falling quickly.
Oil at $100 a barrel? No way, says one defiant expert. Expect $60 crude--soon.
War in Iraq, destabilization from Turkey, unquenchable thirst for energy in Asia, millions of fuel-slurping SUVs still cruising American highways. No wonder oil prices have jumped above $90 a barrel on the new York Mercantile Exchange, on their way to $100.
Not so fast. According to some longtime observers, we will soon see $60 oil. Their argument is that the main driver of price spikes is something hardly mentioned these days: a miscalculation by the world's most important supplier, Saudi Arabia. And within the next two months that miscalculation will be corrected and oil prices will drop. "It's sure getting set up for a hard fall," says George Littell, partner at Groppe, Long & Littell, a Houston firm that has advised oil drillers and investors on the outlook for crude prices since 1955.
Here's how Littell sees it. Last year Saudi petrocrats thought demand would slacken at the same time that oil production rose from sources outside the Organization of Petroleum Exporting Nations. They cut back Saudi production from 9.5 million barrels a day in March 2006 to 8.5 million a year later in order to keep supply and demand balanced and crude prices hovering around $60 per barrel.
The Saudis got one part of the equation right. The International Energy (otcbb: IENI.OB - news - people ) Agency puts world demand at 85.9 million barrels a day, up only slightly from 2006. And among the 30 industrialized nations that make up the Organisation for Economic Co-operation & Development, demand has fallen by 100,000 barrels a day over that period.
But the Saudis overestimated non-OPEC production. While companies of many oil-producing nations are pumping cash into the declining oilfields of the North Sea, the Gulf of Mexico and elsewhere, those projects haven't contributed as much crude as analysts expected. "If demand is less, what's got to be driving the price of oil is lower OPEC production," Littell concludes. "It's a miscalculation on their part."
Check out the relationship between prices and production in the accompanying chart. The Saudis hold the key to long-term oil prices since they are one of the few exporters--Kuwait and Abu Dhabi are the others--with the ability to increase production significantly. Littell says the Saudis realized their mistake and began pumping more oil in May. At the most recent OPEC meeting on Sept. 11 members agreed to boost production by another 500,000 barrels a day starting Nov. 1. That increase included a bump in the Saudi quota to 8.9 million barrels a day.
How long before we get some relief? It takes at least a week for the Saudis to complete the paperwork necessary to ship oil to new customers, including arranging letters of credit and other financial details. Then the oil rides in a ship across the Atlantic for 30 days. Add them together and Littell expects the impact of all that additional oil to hit U.S. markets in a couple of months or so. The Saudis "didn't plan on $80 oil," he says. "They wanted to keep it around $60 and did the wrong thing."
Not everyone buys this argument. Certainly not the speculators who've been kicking up the price of oil on the NYMEX for more than a year. Leo Drollas, chief economist at the Centre for Global Energy (otcbb: GEYI.OB - news - people ) Studies in London, believes that oil prices will fall eventually, but not until the middle of next year. Refiners are still trying to refill inventories that dropped to the lowest levels since 2003 after an unexpected cold snap in North America at the beginning of this year. The increase in OPEC quotas, Drollas calls "too little, too late." Besides, he says, "We're facing a winter with low [inventories], and the market's woken up to this." The mess in Iraq, which ships 1.5 million barrels a day through the Persian Gulf, and brinksmanship by Iran may keep prices from falling quickly.
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