I don’t think they have learned their lesson.
Brokers are STILL chasing the oil price higher with their forecasts. Last week, Barclays Capital upped its 2008 West Texas Intermediate price forecast to an average of $97.70. This is more than $10 a barrel higher than its previous forecast. It also upped its forecast for Brent to $96.40 a barrel. This is better… but I think they could still end up red faced.
‘Global distillate markets look like raging bull markets, given the extent to which the incremental global demand barrel is dominated by distillates. OECD demand looks weak (as it has been for three years), but non-OECD demand looks robust and Chinese demand is improving,’ it said.
Oil demand over the past 10 years grew 1.5 million barrels per day – and costs to find new oil keeps rising and rising. New sources of oil are likely to be found in logistically difficult (and expensive) areas such as deep water and in Arctic/Antarctic regions. There will also be a greater reliance on heavy and sour oil, which needs more refining.
According to Reuters, the current consensus oil forecasts is in the mid-$80 area. With the dollar continuing to plunge (which fuels speculation), geopolitical concerns rising and demand being driven by population growth and increasing affluence, I believe that the triple-digit oil age has arrived – and it is here to stay.
According to Forbes, if oil stays above $100 this year the earnings estimates for oil majors are around 15% too low… and I suspect that this is going to happen.
Opec decided not to reduce output at its last meeting. Getting the maximum premium for their oil before their fields run dry must be a priority for its governments. These cash piles of petrodollars can be used by their sovereign wealth funds to play a game of global monopoly, snapping up bargain assets uncovered by the dollar’s plunge. They can then invest for their post-oil world.
Opec also pointed out that the oil market was pushed higher by a weak dollar, speculation and political strife… they said it was not caused by a lack of crude… If Opec wanted to push the oil price lower, I question how much effect their actions would have in the real world. The main driver at the moment is the dollar.
In 2007 the oil price went up by more than 50%… it is almost up by 20% this year so far… but there is more to come. If you think that Opec will make any significant moves to ease the price, I think you are mistaken. If you reckon they can have a significant impact on the price, I would disagree. If you believe that demand will slump, I suspect that you are wrong.
The oil sector will continue to pump home the profits for years to come. Are you exposed to the right investments?
This article is taken from Garry White’s free daily email, ‘Garry Writes’