Oil rebounds to $64 after testing 17-month low on global recession concerns

Posted Oct 27th 2008 3:46PM by Joseph Lazzaro
Filed under: Forecasts, Commodities, Oil

Oil tested 17-month lows Monday, before recovering, but traders nevertheless expect oil prices to trend lower on intensifying concern about a global recession.

Oil fell as much as $2.85 to $61.30 per barrel Monday before recovering to $64.10.

The other major energy commodities were mixed on Monday afternoon. Heating oil rose 3 cents to $1.95 per gallon, unleaded gasoline fell 3 cents to $1.47 per gallon, and natural gas fell 8 cents to $6.15 per million BTUs.

OPEC's cut achieves little

Energy Trader Jim Dietz told BloggingStocks that OPEC's announcement on Friday that it would cut production by 1.5 million barrels per day beginning November 1 did little to alter bearish sentiment in the oil market.

"Right now, it's all about lower demand growth in emerging markets and decline demand in the United States," Dietz said. "The oil market is factoring-in a significant GDP slowdown in China, India, and other emerging markets, which means total global oil demand could rise just 1% or even less this year. That means we'll most likely test $55 per barrel pretty soon, and if we get a negative U.S. GDP number [statistic] for the third quarter, which is likely, oil's head much lower." Dietz added that he was currently flat, or had no open energy trading positions.

Other analysts are even more bearish on oil. Cameron Hanover's Peter Beutel told CNBC Monday a $37 per barrel oil price is likely, if one applies the historic rule of cutting the high price during the boom, near $150, by a factor or four, during the ensuing the bust, or bear market. Further, Beutel says $20 oil isn't out of the question.

Dietz said "prices below $40 are possible," but projecting them requires rock-solid forecasts about U.S., European, and emerging market GDP, a half-year and a year out -- something that's hard to do.

"As soon as you get beyond a month, the margin of error for price estimates goes way up because demand can vary," Diets said. "And as this market shows, demand can change a great deal in just one month."

Oil Analysis: Energy Trader Dietz doesn't analyze supply, but another factor in oil's price will be whether OPEC announces another production cut later this year, if prices do not stabilize.

Tags: emerging markets, gasoline prices, gdp, oil prices, OPEC