PowerSwitch

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.

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.

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

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.