Saturday, December 13, 2008

Oil Prices: Cliff Diving

by Bill McBride on 12/13/2008 09:06:00 AM

The Goldman Sachs analyst who predicted oil at $200 per barrel in 2008, has lowered his 2009 forecast again.

From The Times: Expert cuts $200-a-barrel oil forecast to $45

In a research note published late on Thursday, [Goldman Sachs oil analyst Arjun] Murti's team said that it had been compelled to trim its average price outlook for next year to $45, from a previously reduced forecast of $75, because of a “continued deterioration in global oil demand”.

The note read: “Global economic conditions are the weakest the world has seen since at least the early 1980s and demand is declining at an accelerating rate.”
...
“We think that the sharp and sudden collapse in global oil demand exceeds Opec's ability to, on its own, balance markets, and necessitates sharply lower non-Opec crude-oil supply,” the report said.
Oil Prices Click on graph for larger image in new window.

This graph shows the weekly U.S. spot oil prices (from EIA). This is some serious cliff diving.

Murti expects production cuts from both OPEC and non-OPEC producers. However, as I noted in Thoughts on Oil, it is difficult for some countries to cut production when their expenditures are $50 per barrel and oil prices are in the mid $40!

The only good news for oil producers is there was an increase in gasoline consumption in the U.S. in October (see DOT: Gasoline Demand Increases in October), but vehicle miles driven in the U.S. was still 3.5% below last year. And with China's economy weakening significantly, global demand for oil will probably be weak in 2009.

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