Oil prices, the source of so much inflation and consternation in the developed and developing world, are expected to continue to slide toward $60, economists and traders say, even as OPEC prepares to cut production at a special meeting this week. Oil has fallen about 50% since hitting a record high of $147.27 per barrel in July, amid a financial crisis that's slowed growth in every region of the globe. Further, OPEC, which produces about 40% of the world and will hold a special meeting October 24, will only able to slow oil's descent to the $60-range, with anticipated production cuts, so says economist Peter Dawson.
"The report that China's economy grew at a 9% annual rate in the third quarter is the last piece of the oil demand puzzle, as far as the slowdown is concerned," Dawson said. "China was growing at better than 10% in the same quarter a year ago, so that will further reduce the growth in global oil demand, which is bearish for oil prices. Prices will most likely slide toward the $60-range by mid-2009." Oil rose $1.35 to $73.20 per barrel in Monday morning trading.
Oil prices: downward trend seen for 2009
OPEC senses the downward trend as well. The initial consensus among economists and analysts was that Saudi Arabia would go against hawkish cartel members Iran, Venezuela and Libya, and maintain Saudi oil production levels, to assist the recovery of the global economy. But now Dawson is not so sure about the Saudi's upcoming stance.
"It now appears the Saudis will agree to a cut. The Saudis can tolerate a slide in oil prices toward the $60, but a slide toward $50, while they can still pump oil profitably, would nevertheless hurt their fiscal budget, along with that of other OPEC nations. So OPEC may end up cutting output by about 750,000-1,000,000 barrels of oil per day on October 24," Dawson said.
"It's not an easy call for the Saudis because they're much more focused on global growth than Iran or Venezuela, but they want to prevent a precipitous decline in oil prices given the likelihood that developed world demand will not rebound until the second half of 2009." Dawson said.
Oil Analysis: The preferred outcome would be a gradual reduction in oil prices to at least $60 per barrel. That's a price high enough to maintain adequate oil producing nation revenue streams and encourage energy exploration; and the price also will reduce oil consuming nations' oil bills. Still, if U.S. oil consumption continues to decline and global growth remains sluggish in 2009, oil is likely to move below $60, as economist Dawson noted, despite OPEC's production cutback.
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Reader Comments (Page 1 of 1)
10-20-2008 @ 2:10PM
JCH said...
Nobody is going to drill for oil at $60 a barrel. If there is no recovery, next year oil will be $40. YOU WOULD BE AN IDIOT TO DRILL INTO THAT WASTELAND.
This guy is smoking that other guy's hemp.
10-20-2008 @ 4:06PM
raj said...
am i the only one that remembers when oil was at 20? I mean how quickly we forget these things that everything always comes back to the mean. jeez 147 was a phenomenon, and probably wont happen for a long time.