Economists are giddy over the prospects of $100 crude. Predictions of oil dropping to that level are almost as prevalent as were forecasts of $200 just three months ago.
The swings in the forecasts show just how little experts know about where prices are going.There are too many factors pressuring speculation, supply, and demand to guess at where oil will be at the end of this month, let alone the end of the year.
Several forces will likely conspire to keep prices where they are now or even raise them.
OPEC is no less greedy today than it was a few months ago. At that time, it was willing to make the argument that supply was not the cause of rising oil prices. Oddly enough, neither was demand. The balance of oil need and oil flow was perfect. Speculation and the dollar were the villains. The US government needed to get a hand around those. By OPEC’s reasoning, if demand is falling now, it can cut back on supply. No reason for the members to make less money.What would be the point of that?
The current storm in the Gulf looks like it will miss oil rigs. The hurricane season has a few months to go. Every time the water gets rough and the wind picks up, there will be a temptation for prices to move north again.
The drop in demand for crude in India and China is anecdotal now. Until government agencies or state-owned oil companies in either country says that use has slackened, there is no reason to believe that anything has changed. Without diesel and gas consumption, the two big economies have to admit that they have bowed to the powers of recession.
Political unrest in countries with oil reserves has not improved at all. There is no peace in Nigeria and no calm in Iran. A schizophrenic still runs Venezuela. Countries including Mexico and Russian are keeping more crude "in country" to build out their own infrastructures.
Every fall news of cold winters in the Northern tier of the US bring predictions of spiking demand for heating oil. Global warming does not seem to have undermined those predictions. They will make their annual visit in September. The price of oil will rise.
Oil is not going below $120, at least not by much.
Douglas A. McIntyre
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