Oil prices: is there a spike on the horizon?

Kieran · Post by **Kieran** » 08 Jul 2009, 14:22

http://www.telegraph.co.uk/finance/fina ... rizon.html

PS_RalphW · Post by **PS_RalphW** » 08 Jul 2009, 14:57

I love the way the Torygraph is so on the ball, posting this in the week that the oil price drops 20%.

I'm not predicting which way the price will go in the next few months, but three years from now it will be as high as the global economy will support.

RGR · Post by **RGR** » 08 Jul 2009, 18:30

[quote="RalphW"]I

IanG · Post by **IanG** » 08 Jul 2009, 18:52

I used to work for a risk management software company. One of the models was to look at the underlying volatility of the instrument.

We've gone from $147 to $30 to $73 and then $60 in less than 12months. With a global demand down by 1.9m bbd ( or 2.2% ) Global demand is a mixed picture, with china/india and others picking up some of the slack from the US / EU.

Merrill Lynch increased its oil price forecast for 2009 and 2010. The broker expects US crude to average $58.50 in 2009 and $75 in 2010. It believes that oil prices may reach $82 by the fourth quarter of 2010 because of limited growth in non-OPEC supply, a fall in Opec spare capacity and a weaker dollar.

Frankly if the US & EU return to growth in 2010/11, $147 will look cheap

RGR · Post by **RGR** » 08 Jul 2009, 21:15

[quote="IanG"]

IanG · Post by **IanG** » 09 Jul 2009, 08:02

Interestingly, my take on any future scenarios must now include the obvious example provided by the relative strengths of demand destruction versus natural field decline.

I think part of my point was, that part of the west's demand destruction has been taken up by others.

86 mbb less 5 mbb plus new demand 3mbb = 84 mbb.

I think when we return to our old ways the supply just won't be there to deliver 89 mbb and the prices will spike past $147. $147 will act as a tipping point, the market will tip toe upto it and then shoot past it.

Step 2 of how this particular scenario plays out, which is whether or not substitution can just as easily overpower field declines as well

I'd love to think this could happen but, 1) I don't think we have the time or political foresight to deliver the transition 2) Our anglo saxon model of economics seem to be to extract the most out of our current models before we re-think them. I think we need the bridge to burn before we look for another way to cross the river.

RGR · Post by **RGR** » 09 Jul 2009, 12:47

[quote="IanG"]

SunnyJim · Post by **SunnyJim** » 09 Jul 2009, 14:44

Could it be that $147 wasn't driven by supply vs demand, but was a huge speculative bubble? Could it be that demand didn't outstripped supply? It was probably getting close, but could the drastic swing in the market have been due to speculation?

The oil shock is coming sometime, but I'm not sure that spike was really it.

Matt Taibbi wrote: And what caused the huge spike in oil prices? Take a wild guess. Obviously Goldman had help — there were other players in the physical-commodities market — but the root cause had almost everything to do with the behavior of a few powerful actors determined to turn the once-solid market into a speculative WE ARE DODGY. Goldman did it by persuading pension funds and other large institutional investors to invest in oil futures — agreeing to buy oil at a certain price on a fixed date. The push transformed oil from a physical commodity, rigidly subject to supply and demand, into something to bet on, like a stock. Between 2003 and 2008, the amount of speculative money in commodities grew from $13 billion to $317 billion, an increase of 2,300 percent. By 2008, a barrel of oil was traded 27 times, on average, before it was actually delivered and consumed.

Taken from http://www.rollingstone.com/politics/st ... hine/print[/url]