September 26, 2005
JUST WHEN WE SOLD THE HOUSE AND BOUGHT OIL FUTURES ON PAUL KRUGMAN'S ADVICE:
Oil bubble set to burst?: Some analysts say prices could now retreat after industry dodges severe damage from Rita.
Could the recent spike in oil prices have created a bubble that's about to burst?With Hurricane Rita causing less damage that originally feared to the oil industry and oil prices treading water Monday, some industry analysts said we may be about to watch a steady, and significant, drop in energy prices.
"Price declines could be slow this week, maybe with a bubble burst at some point in the future," said analyst Peter Beutel, president of Cameron Hanover. "It does appear we've turned the corner here in this market. I don't think we'll see prices at these levels again anytime in the next five years." [...]
But before you start cheering Beutel's prediction, understand that part of his forecast is based on the belief that oil is high enough now to spark a global recession, which will significantly cut demand. He also believes that recent oil price records have spurred plans to increase global oil production, which he sees feeding the decline in oil prices.
Beutel sees oil prices falling all the way to the $25 to $35 a barrel range in late 2006 or 2007. Most other analysts aren't willing to follow that forecast, although some agree there could be a pullback in prices, even without a recession, if consumers start to have some breaks go their way.
"I think if the rest of the hurricane season doesn't cause disruptions, and global supplies stay as they are, we should see prices pulling back into in the low to mid-$50's, without a recession," said Sheraz Mian, oil analyst for Zacks Investment Research. "We could be in the high $40's if it's a warm winter."
The Saudis say they want a $20 a barrel drop. Posted by Orrin Judd at September 26, 2005 1:59 PM
Wouldn't that be a kick if oil prices fell by half right before the 2006 elections? I think I can hear the exploding heads from here.
Posted by: Timothy at September 26, 2005 2:24 PMTimothy - Given the theory that no one pays attention to elections until after Labor day but given the need for the good news to filter out to the public the prices should drop around Labor day.
Posted by: AWW at September 26, 2005 2:28 PMIt will stay at least in the $50s for a few months more, until the markets can gauge the after-effects of Katrina/Rite in terms of this winter's heating oil (and natural gas) supply needs, which depend both on the weather itself and domestic production capacity. But if December and January are relatively mild weather months, look for the cost to plunge by spring.
Posted by: John at September 26, 2005 4:03 PM
If the Saudis want a $20 drop, I assume it's to discourage development of alternate sources of energy.
Posted by: jdkelly at September 26, 2005 4:52 PMAnd the global recession that Beutel forecasts.
Posted by: oj at September 26, 2005 4:54 PMAnd that's why we need to stay the course this time JD. My guess is those who say the Saudis fear nothing more than an American tax increase on petroleum have it right. We've established a habit of forgetfulness as the Saudi ringmasters manipulate us with treats and take our cash for the madrassas.
Posted by: Genecis at September 26, 2005 6:27 PMI do know that simply by speaking with friends and acquaintances, the price of gas at the pumps have gotten high enough and stayed there long enough that people are considering major lifestyle changes to reduce their gas bill.
Likewise, the fuel surcharge for many trucking carriers are at the 18-20% range where normally it's about 3-4%. FX and UPS are around 15% for express services. That's a substantial increase, and businesses are looking on what to do to cut costs.
Posted by: Chris Durnell at September 26, 2005 6:54 PMMaybe this time the Saudis will be too late. Or maybe this time we will wake up to things like nukes.
Posted by: jdkelly at September 26, 2005 8:18 PM