It is fairly easy to imagine oil trading at $65 for a long time or even moving lower. What is not easy to imagine is why oil would rise 100%. The trend has been so sharply downward.
Two things are conspiring to push oil prices back up. The first is that OPEC nations will go bankrupt if crude stays were it is. That may not be entirely true, but the cartel only needs a thin excuse for cutting production and it will do so until its gets its way, at least economically.
The other force that is ignored because it seems so far off is the end of the recession.
The latest report from the International Energy Agency, the gold standard in looking at oil supply and demand, says that crude will head right back up to $100 once the economy strengthens.
According to the FT, "The developed world’s energy watchdog has doubled its long-term price expectation from last year’s $108 a barrel for 2030 and assumes oil prices will rebound from today’s $60-$70 a barrel to trade, in real terms adjusted by inflation, at an average of more than $100 a barrel from 2008 to 2015."
The agency’s analysis is actually based more on supply than demand. It has moved to the pessimist’s side of town with the view that the amount of crude in the ground is falling rapidly and the cost of recovery is rising just as fast. At some point fairly soon, it will cost too much to find the oil near the earth’s core.
The recession may do a lot of things. Keeping oil prices down over the long term is not one of them
Douglas A. McIntyre
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