Oil Forecasts
07-21-2008, 07:50 PM
#1
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Posts: 1,203
Oil Forecasts
Not too bright....
Forecasted prices and trends
Fatih Birol, chief economist of the International Energy Agency expressed his opinion in October, 2007 that oil prices will remain high for the foreseeable future due to rapid increases in demand from the huge developing economies of China and India. Although India has raised prices, China has "no plans" to do so.[117] According to informed observers, OPEC, meeting in early December, 2007, seemed to desire a high but stable price that would deliver substantial needed income to the oil producing states, but avoid prices so high that they would negatively impact the economies of the oil consuming nations. A range of 70–80 dollars a barrel was suggested by some analysts to be OPEC's goal.[118]
Some analysts point out that major oil exporting countries are rapidly developing; and because they are using more oil domestically, less oil may be available on the international market. This effect, outlined in the export land economic model, could significantly reduce the oil available for trade and cause prices to continue to rise. Particularly significant are Indonesia (which is now a net importer of oil), Mexico and Iran (where demand is projected to exceed production in about 5 years), and Russia (whose domestic petroleum demand is growing rapidly).[119]
In May 2008, Barclays Capital raised its forecast for average crude oil price in 2008 from its previous prediction of $100.80/bbl to $116.90/bbl, citing the only modest decreases in oil consumption among OECD countries, strong demand growth among non-OECD countries, the slow development of alternative fuels, and weak non-OPEC supply which "continues to under-perform dramatically relative to consensus expectations."[120]
Also in May 2008, Arjun N. Murti and other Goldman Sachs analysts issued a research report predicting oil prices are likely to rise to between $150 to $200/bbl in the next six to 24 months.[121] This was a marked increase from Goldman Sachs' earlier (September, 2007) forecast of oil prices averaging $85/bbl through 2008, rising to $95/bbl at year end, which was in turn an increase from still-earlier predictions.[122]
Also in May 2008, T. Boone Pickens, Jr., the influential oil investor who believes the world’s oil output is about to peak, warned oil prices would hit $150 a barrel by the end of the year. “Eighty-five million barrels of oil a day is all the world can produce, and the demand is 87m,” Mr Pickens said in an interview with CNBC. “It’s just that simple.”[123]
In June 2008, Alexei Miller, head of Russian energy giant Gazprom, warned that the price of oil is likely to hit $250 a barrel sometime in 2009. Miller said that while speculation had played a role in oil prices, "this influence was not decisive."[124] Bloomberg reported that, as of mid-June, "At least 3,008 options contracts have been purchased giving holders the right to buy oil at $250 a barrel in December".[125]
Also in June 2008, Shukri Ghanem, head of Libya's National Oil Corporation, said: "I think it [the oil price] will go higher. That is a trend that will continue for some time. The easy, cheap oil is over, peak oil is looming."[126]
On 26 June 2008, OPEC President Chakib Khelil said in an interview: "I forecast prices probably between $150-170 during this summer. That will perhaps ease towards the end of the year."[127] Iran's OPEC governor Mohammad-Ali Khatibi predicts that the price of oil would reach $150 a barrel by the end of this summer.[128]
Near-term peak oil proponent Matthew Simmons predicts a rise to $300 a barrel or higher by 2013 as sweet crude petroleum becomes more scarce and major producers begin failing to meet demand.[129]
Forecasted prices and trends
Fatih Birol, chief economist of the International Energy Agency expressed his opinion in October, 2007 that oil prices will remain high for the foreseeable future due to rapid increases in demand from the huge developing economies of China and India. Although India has raised prices, China has "no plans" to do so.[117] According to informed observers, OPEC, meeting in early December, 2007, seemed to desire a high but stable price that would deliver substantial needed income to the oil producing states, but avoid prices so high that they would negatively impact the economies of the oil consuming nations. A range of 70–80 dollars a barrel was suggested by some analysts to be OPEC's goal.[118]
Some analysts point out that major oil exporting countries are rapidly developing; and because they are using more oil domestically, less oil may be available on the international market. This effect, outlined in the export land economic model, could significantly reduce the oil available for trade and cause prices to continue to rise. Particularly significant are Indonesia (which is now a net importer of oil), Mexico and Iran (where demand is projected to exceed production in about 5 years), and Russia (whose domestic petroleum demand is growing rapidly).[119]
In May 2008, Barclays Capital raised its forecast for average crude oil price in 2008 from its previous prediction of $100.80/bbl to $116.90/bbl, citing the only modest decreases in oil consumption among OECD countries, strong demand growth among non-OECD countries, the slow development of alternative fuels, and weak non-OPEC supply which "continues to under-perform dramatically relative to consensus expectations."[120]
Also in May 2008, Arjun N. Murti and other Goldman Sachs analysts issued a research report predicting oil prices are likely to rise to between $150 to $200/bbl in the next six to 24 months.[121] This was a marked increase from Goldman Sachs' earlier (September, 2007) forecast of oil prices averaging $85/bbl through 2008, rising to $95/bbl at year end, which was in turn an increase from still-earlier predictions.[122]
Also in May 2008, T. Boone Pickens, Jr., the influential oil investor who believes the world’s oil output is about to peak, warned oil prices would hit $150 a barrel by the end of the year. “Eighty-five million barrels of oil a day is all the world can produce, and the demand is 87m,” Mr Pickens said in an interview with CNBC. “It’s just that simple.”[123]
In June 2008, Alexei Miller, head of Russian energy giant Gazprom, warned that the price of oil is likely to hit $250 a barrel sometime in 2009. Miller said that while speculation had played a role in oil prices, "this influence was not decisive."[124] Bloomberg reported that, as of mid-June, "At least 3,008 options contracts have been purchased giving holders the right to buy oil at $250 a barrel in December".[125]
Also in June 2008, Shukri Ghanem, head of Libya's National Oil Corporation, said: "I think it [the oil price] will go higher. That is a trend that will continue for some time. The easy, cheap oil is over, peak oil is looming."[126]
On 26 June 2008, OPEC President Chakib Khelil said in an interview: "I forecast prices probably between $150-170 during this summer. That will perhaps ease towards the end of the year."[127] Iran's OPEC governor Mohammad-Ali Khatibi predicts that the price of oil would reach $150 a barrel by the end of this summer.[128]
Near-term peak oil proponent Matthew Simmons predicts a rise to $300 a barrel or higher by 2013 as sweet crude petroleum becomes more scarce and major producers begin failing to meet demand.[129]
07-21-2008, 09:38 PM
#2
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Posts: 146
It's important to keep in mind who the people are that are actually making the forecasts and then consider whether or not if any of these people have anything to financially gain personally by forecasting significantly higher prices. If so, there very well could be some self-interest at play there.
07-21-2008, 10:12 PM
#3
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Joined APC: Jul 2006
Posts: 146
I posted this article recently in another thread. It appeared on Al Jazerra's website earlier in the month and it points to speculation as being the main reason for the significant increases in the price of oil this year; not demand exceeding supply. So, if speculation is the present cause of the large price increases, there is every reason to suspect that speculation will continue to be the main reason for the significant future price increases that's being forecasted by these guys. Why? Because easy money will continue to be made hand over fist by talking the price up...
Adhip Chaudhuri, a visiting professor of economics at Georgetown University's campus in Doha, Qatar, explains the cause and effect of high oil prices:
Is the growth in world demand for oil the main reason?
Demand is one part of what the money market calls "fundamentals". The other is, of course, supply. In the opinion of the Bush administration, and the majority of the Wall Street establishment in the US, demand is the principal reason why oil prices are going up astronomically. However, this point of view does not correspond to facts.
Consider first the oft-mentioned demand from "China and India" which is frequently put forward as the principal reason why oil prices are going up.
According to official statistics published by the United States government, China consumed an additional 377,000 barrels of oil per day during 2007.
However, during the same time period Germany and Japan together decreased their consumption by 380,000, and hence, the net effect of China’s increased consumption is zero.
Even if China doubled its consumption in the first half of 2008, say to stockpile for the Olympics, the increment would be a drop in the bucket of total world consumption of 86 million barrels per day.
The same is true of India. It increased consumption by only 150,000 barrels per day during 2007, which is virtually indiscernible in the total world demand.
Notice also that the sum of additional consumption from "China and India" barely exceeds 500,000 barrels, an amount that Saudi Arabia has promised to increase production by.
Finally, the US has projected that the net increase in oil consumption during 2008 will increase by one million barrels per day, which is about 1.1 per cent. How can such a small increase in demand increase oil prices by 100 per cent between July 2007 and July 2008?
What is happening with the supply of oil?
The supply of crude oil has been remarkably stagnant over the last three years. According to official US statistics, the production of crude worldwide was 84.63 million barrels per day in 2005, and it was 84.55 million barrels per day in 2007. Thus, even small increases in demand over the last three years have put upward pressures on prices.
The near-term supply situation, according to the International Energy Agency, is not all that bad. Saudi Arabia will be adding to their capacity, deepwater Nigerian production will start in 2008, and Iraqi production will see an increase. If one added up the growth in all forms of energy, namely crude oil, natural gas, and biofuels, according to IEA there should be an increase in supply capacity of 1.5 million barrels during 2008.
Notice that amount of increase in supply is greater than the projected increase in demand for 2008 amounting to 1 million barrels per day. The supply projection for 2009 is even better. The supply capacity is expected to increase by 2.5 million barrels, which will outstrip the growth in demand comfortably.
It is the very short-term supply disruptions which seem to be more important for an increase in oil prices. Real disruptions may come from labour strikes in Venezuela, hurricanes in the Gulf of Mexico, and rebel attacks in Nigeria. Given that the demand and supply situation is so tight, even the slightest of bad news can increase the price of oil in the futures and spot markets noticeably.
Can the weak dollar be blamed for high oil prices?
Asserting that the "weak dollar" is a significant reason behind the rise in oil prices has become as ritualistic as asserting that "China and India" are the cause. And yet, the forces which determine the foreign exchange value of the dollar against the euro, the yen, or the pound are distinctively different from those that determine the price of oil.
There is, however, one logical argument which can sometimes provide a sufficient explanation as to why a depreciating dollar and increasing oil prices are inversely related - If the dollar weakens against the euro, the ability of the oil-exporting countries to buy European goods will decline because their oil exports are denominated in dollars.
The Europeans, at the same time, will be able to pay the higher dollar prices of oil because the euro has appreciated. Clearly, to keep their purchasing power over European goods constant, the oil-exporting countries need an increase in oil price approximately equal to the depreciation of the dollar.
However, for the first six months of 2008 the dollar has depreciated against the euro by only 7.5 per cent, while oil prices have gone up by about 50 per cent.
Surely, both Americans and Europeans are paying much higher prices for oil than can be explained by a "weak dollar".
Is speculation, then, a major factor?
The energy ministers of Saudi Arabia and Qatar asserted for the first time in public at the recent Jeddah meeting of major oil producing and consuming nations, that speculation in the oil futures markets was the most important reason why current oil prices are going up.
The United States Senate has been holding hearings in front of several committees since 2006 on the lack of regulation and oversight by the official Commodity Futures Trading Commission (CFTC) in the New York Mercantile Exchange (NYMEX) one of the two locations for oil futures.
In a recent testimony to the Senate, a hedge fund trader presented data to show that outstanding speculative positions in all commodities futures has reached $250 billion by March 2008, as compared to only $13 billion at the end of 2003.
As far as speculation specifically in oil futures is concerned, representative Bart Stupak (Democrat-Michigan), the head of the House Energy and Commerce Committee, announced recently that 71 per cent of all oil futures were owned by institutional investors.
The institutional investors, which consist of but is not confined to state pension funds and university endowments from the United States, have been pouring funds into indexed commodity funds as part of a strategy of portfolio diversification.
The traditional assets, in which they would have otherwise invested in, namely stocks and bonds, have been yielding negative returns after inflation.
These investors can buy futures contracts with only a 5 per cent margin down payment. In addition the regulatory environment is very slack, filled with loopholes which bypass whatever few regulations that are on the books.
While there are dollar limits to positions that the institutional investors might take in the NYMEX, they are allowed to conduct "swaps" with the investment banks like Goldman Sachs and Morgan Stanley, and thereby manage to roll over their "buy" positions. This way they never have to take physical possession of the oil that they put in "buy" orders for.
If speculation is what is driving oil prices up, then it stands to reason that such high prices should lead to an excess supply of crude in the world. There are signs that such an excess supply is indeed building up, albeit slowly, much like the way the excess supply of housing emerged in the United States.
Fuel consumption has declined in the US sharply. We have already noted that oil consumption in Japan and Germany are actually decreasing.
Consumers in China and India have been insulated from the high world prices of oil until very recently with domestic subsidies. However, China has raised the prices of various petroleum products amounting to an average increase of 18 per cent, and so has India, by 13 per cent. The decrease in the demand for oil will start strengthening soon.
The biggest argument for speculation to be the single-most important cause for oil price increases in 2008 is: What else could have doubled the price of oil in one year?
Is the growth in world demand for oil the main reason?
Demand is one part of what the money market calls "fundamentals". The other is, of course, supply. In the opinion of the Bush administration, and the majority of the Wall Street establishment in the US, demand is the principal reason why oil prices are going up astronomically. However, this point of view does not correspond to facts.
Consider first the oft-mentioned demand from "China and India" which is frequently put forward as the principal reason why oil prices are going up.
According to official statistics published by the United States government, China consumed an additional 377,000 barrels of oil per day during 2007.
However, during the same time period Germany and Japan together decreased their consumption by 380,000, and hence, the net effect of China’s increased consumption is zero.
Even if China doubled its consumption in the first half of 2008, say to stockpile for the Olympics, the increment would be a drop in the bucket of total world consumption of 86 million barrels per day.
The same is true of India. It increased consumption by only 150,000 barrels per day during 2007, which is virtually indiscernible in the total world demand.
Notice also that the sum of additional consumption from "China and India" barely exceeds 500,000 barrels, an amount that Saudi Arabia has promised to increase production by.
Finally, the US has projected that the net increase in oil consumption during 2008 will increase by one million barrels per day, which is about 1.1 per cent. How can such a small increase in demand increase oil prices by 100 per cent between July 2007 and July 2008?
What is happening with the supply of oil?
The supply of crude oil has been remarkably stagnant over the last three years. According to official US statistics, the production of crude worldwide was 84.63 million barrels per day in 2005, and it was 84.55 million barrels per day in 2007. Thus, even small increases in demand over the last three years have put upward pressures on prices.
The near-term supply situation, according to the International Energy Agency, is not all that bad. Saudi Arabia will be adding to their capacity, deepwater Nigerian production will start in 2008, and Iraqi production will see an increase. If one added up the growth in all forms of energy, namely crude oil, natural gas, and biofuels, according to IEA there should be an increase in supply capacity of 1.5 million barrels during 2008.
Notice that amount of increase in supply is greater than the projected increase in demand for 2008 amounting to 1 million barrels per day. The supply projection for 2009 is even better. The supply capacity is expected to increase by 2.5 million barrels, which will outstrip the growth in demand comfortably.
It is the very short-term supply disruptions which seem to be more important for an increase in oil prices. Real disruptions may come from labour strikes in Venezuela, hurricanes in the Gulf of Mexico, and rebel attacks in Nigeria. Given that the demand and supply situation is so tight, even the slightest of bad news can increase the price of oil in the futures and spot markets noticeably.
Can the weak dollar be blamed for high oil prices?
Asserting that the "weak dollar" is a significant reason behind the rise in oil prices has become as ritualistic as asserting that "China and India" are the cause. And yet, the forces which determine the foreign exchange value of the dollar against the euro, the yen, or the pound are distinctively different from those that determine the price of oil.
There is, however, one logical argument which can sometimes provide a sufficient explanation as to why a depreciating dollar and increasing oil prices are inversely related - If the dollar weakens against the euro, the ability of the oil-exporting countries to buy European goods will decline because their oil exports are denominated in dollars.
The Europeans, at the same time, will be able to pay the higher dollar prices of oil because the euro has appreciated. Clearly, to keep their purchasing power over European goods constant, the oil-exporting countries need an increase in oil price approximately equal to the depreciation of the dollar.
However, for the first six months of 2008 the dollar has depreciated against the euro by only 7.5 per cent, while oil prices have gone up by about 50 per cent.
Surely, both Americans and Europeans are paying much higher prices for oil than can be explained by a "weak dollar".
Is speculation, then, a major factor?
The energy ministers of Saudi Arabia and Qatar asserted for the first time in public at the recent Jeddah meeting of major oil producing and consuming nations, that speculation in the oil futures markets was the most important reason why current oil prices are going up.
The United States Senate has been holding hearings in front of several committees since 2006 on the lack of regulation and oversight by the official Commodity Futures Trading Commission (CFTC) in the New York Mercantile Exchange (NYMEX) one of the two locations for oil futures.
In a recent testimony to the Senate, a hedge fund trader presented data to show that outstanding speculative positions in all commodities futures has reached $250 billion by March 2008, as compared to only $13 billion at the end of 2003.
As far as speculation specifically in oil futures is concerned, representative Bart Stupak (Democrat-Michigan), the head of the House Energy and Commerce Committee, announced recently that 71 per cent of all oil futures were owned by institutional investors.
The institutional investors, which consist of but is not confined to state pension funds and university endowments from the United States, have been pouring funds into indexed commodity funds as part of a strategy of portfolio diversification.
The traditional assets, in which they would have otherwise invested in, namely stocks and bonds, have been yielding negative returns after inflation.
These investors can buy futures contracts with only a 5 per cent margin down payment. In addition the regulatory environment is very slack, filled with loopholes which bypass whatever few regulations that are on the books.
While there are dollar limits to positions that the institutional investors might take in the NYMEX, they are allowed to conduct "swaps" with the investment banks like Goldman Sachs and Morgan Stanley, and thereby manage to roll over their "buy" positions. This way they never have to take physical possession of the oil that they put in "buy" orders for.
If speculation is what is driving oil prices up, then it stands to reason that such high prices should lead to an excess supply of crude in the world. There are signs that such an excess supply is indeed building up, albeit slowly, much like the way the excess supply of housing emerged in the United States.
Fuel consumption has declined in the US sharply. We have already noted that oil consumption in Japan and Germany are actually decreasing.
Consumers in China and India have been insulated from the high world prices of oil until very recently with domestic subsidies. However, China has raised the prices of various petroleum products amounting to an average increase of 18 per cent, and so has India, by 13 per cent. The decrease in the demand for oil will start strengthening soon.
The biggest argument for speculation to be the single-most important cause for oil price increases in 2008 is: What else could have doubled the price of oil in one year?
07-22-2008, 04:33 AM
#4
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Joined APC: Sep 2007
Posts: 207
My brain begins to hurt when I see big posts. 
(You know what I mean, don't get funny)
Seattle Times, June 20, 2008.
SHANGHAI, China — China said Thursday that it would raise fuel and electricity prices, a move that could add to the nation's already high inflation rate but cut consumer demand and thus help lower global crude-oil prices.
China, which has been keeping fuel costs for consumers below market rates with billions of dollars in subsidies, said that retail gas prices as of today would rise more than 16 percent and that diesel prices would jump 18 percent.
The increase in China's retail pump prices — to about $3.05 per gallon for gas and $3.31 for diesel — is expected to reduce consumption.
(You know what I mean, don't get funny)Seattle Times, June 20, 2008.
SHANGHAI, China — China said Thursday that it would raise fuel and electricity prices, a move that could add to the nation's already high inflation rate but cut consumer demand and thus help lower global crude-oil prices.
China, which has been keeping fuel costs for consumers below market rates with billions of dollars in subsidies, said that retail gas prices as of today would rise more than 16 percent and that diesel prices would jump 18 percent.
The increase in China's retail pump prices — to about $3.05 per gallon for gas and $3.31 for diesel — is expected to reduce consumption.
07-22-2008, 05:53 AM
#5
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Joined APC: May 2007
Posts: 698
You pretty much nailed it with the subsidies that China and India have been giving to their citizens. While you have seen a dramatic shift in the US over fuel usage, you have yet to see it in those two countries.
The problem with the subsidies, is Chinese and Indian citizens end up paying for fuel through their taxes. So it was just a matter of time before the governments there had to either cut the subsidies or raise the taxes. Either way, those two governments created an artificial demand that could not be supported forever and you will see a huge drop in global demand in the coming year.
If it is expensive for us here in the states, just imagine how expensive it should really be for Chinese and Indian citizens. Their bubble may hurt them far more than it hurt us, because they have subsidized it for far too long and for too much.
The problem with the subsidies, is Chinese and Indian citizens end up paying for fuel through their taxes. So it was just a matter of time before the governments there had to either cut the subsidies or raise the taxes. Either way, those two governments created an artificial demand that could not be supported forever and you will see a huge drop in global demand in the coming year.
If it is expensive for us here in the states, just imagine how expensive it should really be for Chinese and Indian citizens. Their bubble may hurt them far more than it hurt us, because they have subsidized it for far too long and for too much.
07-22-2008, 12:34 PM
#8
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Posts: 260
it will continue falling....by fall will be under $100 a barrel, however, any negative issue (hurricanes, destruction of oil fields, or ape crap on the moon) will raise prices...still too late to help the airlines avoid furloughs, that path has already been taken
07-22-2008, 12:51 PM
#9
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Posts: 114
Originally Posted by powrful1
it will continue falling....by fall will be under $100 a barrel, however, any negative issue (hurricanes, destruction of oil fields, or ape crap on the moon) will raise prices...still too late to help the airlines avoid furloughs, that path has already been taken
07-22-2008, 02:01 PM
#10
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Posts: 1,213
Originally Posted by Brendan
I've been seeing this "it's too late not to furlough" a lot. The executives that make these decisions obviously know more than I, but what happens if/when oil drops to a more reasonable level and Spring 2009 rolls around. To increase their flying schedule, wouldn't the airlines have to hire like mad and spend millions on training just to get back to the staffing they have currently have? I understand this is a naive and overly simplistic view, but it just seems like every 7-10 years or so this happens and instead of being anticipatory, everything is reactionary in this industry.
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