Arguments Still Valid Oil Will Go Back To $100

Print Email

With oil moving in the direction of $50 a barrel, analysts keep moving their target price for crude lower.

The argument is simple. A huge global recession will undermine demand in the nations which consumer the most oil, particularly the US and China. Word of China’s new $600 billion stimulus package was actually met with another drop in crude prices. Economists are that pessimistic about the medium-term prospects for the mainland.

The minority report on oil prices is compelling although it has been lost in the excitement about gasoline prices moving back toward $1.

OPEC nations are now becoming "poor", at least by their standards. Iran and Venezuela are actually desperate for cash to fund national deficits. The cartel will almost certainly be forced to cut supply at the rate at which demand is falling, and perhaps by a greater amount.

The International Energy Agency today reported that oil consumers are asleep at the wheel. The economy will recover in a year or two and the financial incentives for crude producers to find more oil are going away due to the low price of the commodity and the fact that new reserves are harder to find and more expensive to drill.

According to the AP, and higher oil prices, but the agency stressed that a delay in spending on new projects due to the credit crisis could lead to a "supply crunch that could choke economic recovery."

"The IEA has nearly doubled its forecast for the price of oil over the next twenty years, because of rising demand in the developing world as well as surging costs of production as oil needs to be sourced from more expensive offshore fields and state-run companies," the wire service said.

Douglas A. McIntyre