Oil Bulls Unbowed

In a break from “all Fannie, Freddie, all the time,” a couple of readers (Dean and Michael) sent oil market sightings, both which cited proponents of $200 a barrel oil in the not-too-distant future, and are have not changed their price views much.

The first, from Reuters, gives the latest forecast from Goldman’s Arjun Murti, whose called for an oil price “super apike” of $150 to $200 a barrel. He has moderated his views a hair and given himself an out:

Goldman Sachs equity analyst Arjun Murti has left his forecast for oil prices unchanged but added prices could fall below $100 a barrel in the event of a global recession, according to a research note.

The forecast, prepared by Murti and other analysts at Goldman, left their price forecast for U.S. West Texas Intermediate crude in the fourth quarter 2008 unchanged at $130 a barrel and its full-year 2009 forecast at $140…

“While we recognize downside global economic risks have risen in the past month or so, the Goldman Sachs Global Economics Research team continues to view modest global growth including a ‘happy slowdown’ in China as its central forecast, which we view as consistent with our continued bullish oil price outlook,” the research note said.

While he maintained his bullish stance for oil, the note added prices could dip into double digits in the event of a global recession.

“In the event a global recession and hard landing in China materializes, WTI spot crude oil prices would likely fall below $100 a barrel, absent an especially sizable supply disruption,” the note said.

“Although fundamental support would be expected to exist around marginal costs ($80-$90 a barrel) given ongoing supply growth challenges, we recognize markets often overshoot fundamentals both to the upside and downside,” the note said.

And from the Wall Street Journal Environment blog:

The real problem is that thanks to hurricanes, the Gulf of Mexico will never live up to its promise as a mother lode of U.S. domestic oil production, leaving the country even more vulnerable to imports. Then the question becomes—imports from where?

That’s the argument laid out in a new report from Jeff Rubin at Canadian investment bank CIBC World Markets, the guys who earlier this year projected $200 oil. Hurricane damage in the Gulf isn’t limited to evacuated rigs or shut-in refineries; the real damage from increasingly brutal storm seasons is the long-term delay in getting new oil fields up and producing.

Three years after Hurricane Katrina, the Gulf still hasn’t recovered its pre-2005 production levels, CIBC notes…

Instead of ramping up production to over 2 million barrels per day as once dreamed by the Departments of the Interior and Energy, Gulf of Mexico production is likely to fall to a low of a million barrels per day by 2013—a third lower than the region’s production prior to the 2005 storm season.

Well there’s always Alaska, right? Governor Sarah Palin has brought drilling in the Alaskan National Wildlife Refuge to the Republican ticket. Doesn’t matter, say the guys at CIBC:

It is certainly clear that no matter what policies are taken toward the ANWR, the region will provide no offset to a further decline in both Gulf of Mexico production and lower 48 state oil production over the next five years.

So how will the U.S. meet its oil needs? Mexico’s big fields are declining at a dizzying rate, even as domestic oil…

Granted, oil prices collapsed after hitting the all-time high in July—they didn’t move toward $200 a barrel, as CIBC feared. And OPEC’s big worry these days is oversupply of the global oil market, not a dearth of crude.

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  1. dh

    FYI: Saudi Arabia has repeatedly emphasised the need for caution, fearing the implications of another rise in prices for the fragile global economy. Ali Naimi, the Saudi Oil Minister, has talked about a floor of $80 as the trigger for action. Prices remain 14 per cent higher this year than in 2007 and a barrel of benchmark crude fetches four times what it did in 2003.

    John Hall, an independent energy analyst, said that the most likely outcome would be for Opec to leave its existing production targets on hold but call for members to adhere more strictly to their individual quotas.

  2. RK

    I have not seen a Goldman or CIBC prediction of the
    price of oil in Zimbabwe dollars, but I would be interested if they have an opinion. My reason is that,
    when we discuss the price of oil, we do so with the
    notion that one side of the equation is fixed, while
    the other fluctuates. We presently live in a time
    when both sides are in flux, arising from
    disturbances both within and outside of a currency regime. While the sheer size of global U.S. dollar reserves, at 62%, may distinguish us fundamentally
    from our African counterpart, thus moderating the
    swiftness of any adjustment, we should not rely on
    predictions of supply and demand as the only
    relevant inputs to future price levels.

  3. mxq

    I’ll repeat what a lot of people have said…but the biggest jokers in this whole mess has been congress.

    They did absolutely nothing.

    Every single proposition that they brought to the floor would have done something (albeit some smaller than others) to eliminate uncertainty or increase confidence in the markets, yet they did absolutely nothing.

    Closing the Enron Loophole did nothing but proffer confusion as the CFTC still doesn’t have oversight of the affected exchanges(“no action” letters were given out like candy the last few years).


  4. Unscripted Thoughts

    CIBC said: “It is certainly clear that no matter what policies are taken toward the ANWR, the region will provide no offset to a further decline in both Gulf of Mexico production”.

    How in the hell can ANWR’s production offset zero, zip, nada in production? It certainly will provide some amount…sorry but that declaration right there just undermines CIBC’s entire credibility and my confidence in anything they say.

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