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Thursday, April 24, 2008

S&P: Oil at $91 Year End, +/- $50

by Calculated Risk on 4/24/2008 03:02:00 PM

From S&P (via MarketWatch): S&P sees oil at $91 at year-end, U.S. in a recession

The American economy is in a recession, which is projected to be short and mild, while oil will likely trade at $91 a barrel by the end of the year, though the range of that forecast is plus or minus $50, Standard & Poor's said Thursday.

"I don't think it [the U.S. recession] will have as much downward impact on commodity prices because [a lot of] commodities demand comes from outside the U.S.," said David Wyss, chief economist at Standard & Poor's, at an oil and gas roundtable in downtown Manhattan on Thursday.
Not a very precise prediction; from $41 to $141 per barrel by year end. Much depends on decoupling vs. recoupling of the world economy. If the global economy slides into recession, then oil prices will probably fall sharply - assuming production stays steady.

Without the strong world economy, oil prices would probably already be falling. From BusinessWeek: Not Guzzling Quite So Much Gas
Traffic levels are trending downward nationwide. Preliminary figures from the Federal Highway Administration show it falling 1.4% last year. Now, with nationwide gasoline prices having recently passed the inflation-adjusted record of $3.40 a gallon set back in 1981, the U.S. Energy Information Administration (EIA) is predicting gas consumption will actually fall 0.3% this year. That would be the first annual decline since 1991. Others believe the falloff in consumption is actually steeper than the government's numbers show.
The supply and demand curves are both very steep for oil, so a small decline in consumption would usually result in a significant decline in price. However, right now global demand is more than making up for any decline in domestic consumption.