Report on Crude Oil Future Price Expectation By Sevak
Where will Go Crude Oil Prices in Future?
Currently crude oil is trading at $ 71-74 per barrel that is almost 50% less than its level of $147 per barrel, within 3 months duration. People are quite confused about the price movement of Crude Oil prices. Before coming to any deciding point, first let me put some facts and figures related to Crude Oil prices:
US alone consume 25% of total world output of Crude Oil. And, there are widespread signs of demand destruction in the largest consumer of oil – US.
Oil, too, is a cyclical business; the length of cycle may vary, but in the end it has to come down based on efficient market theory.
The Crude Oil market is well supplied and this year its production; even after all type of supply constraints; has increased or going to increase by some1.5-2%. In other words of demand and supply, there is no big gap – if any – between the two.
Oil spending as a share of the Global Economy has risen to > 7%, a level last seen in late 1979. And, What happened next is from 1980 to 1983 the consumption of oil fell by 10%. This time – if the current economic situation of looming depression persists – its consumption may fall by more than 10%. For Example US retail gasoline demand last week fell more than 9 % YoY for a second straight week as consumer spending slowed.
Developing and emerging countries like China, India and Indonesia etc not able to sustain the ballooning oil subsidies any longer and have already passed some burden on end user and planning to relate domestic prices with world market price changes.
Index speculators who are widely blamed for commodity price movement world over are now not in position to manipulate prices much following the credit crisis in USA.
Chinese demand has starting decreasing after Olympic completion.
Oil demand is inelastic in short run but not in long run.
Higher prices have done what economics would predict – stimulated efforts to increase supply, companies have expanded their exploration budgets. Oil producing nations have announced new projects. Drilling activity is at a high level both off shore and on land.
All the developed and developing nations, especially countries comprising in G –20 have started taking serious steps towards reducing their dependence on Crude Oil. Whether its nuclear energy or wind energy or solar energy, they have started exploring maximum benefits obtained from these alternatives. Moreover, they have taken steps to increase their bio - fuel production whether from corn, maize or sugarcane or Zetropha or even algae. Algae is supposed be the best and most efficient of all the options from which bio – fuel can be produced.
OPEC’s production has shown dwindling movement in their production over different years.
Finally, summarizing on the basis of what is mentioned above; it will not be a surprise if it see Apr-Jul 07 level of 64 – 66 $/ bbl in a month or two (watching the current economic depression scenario).
On the other hand, still any nation of the world whether developed or developing has not got something concrete as an alternate of Crude Oil and even in the near future they will substantial depend upon Crude Oil to meet their energy needs though its right that they have started taking serious steps to reduce dependence on crude oil. Second, Two third of Oil reserve remains with Middle East; one of the most unstable region of the world. Third, Russia, a major non – OPEC producer, has expanded state control over the oil sector. Third, in the recent time violence has cut production by a quarter in Nigeria and Venezuela etc. Fourth, the depreciation in the value of dollars. Considering some other points also of the gray side of Crude Oil, It will be difficult to sustain oil prices above $ 100 per bbl. But, one thing is clear; it will bounce back from the level of $ 66 and will trade between and or around $ 80 – 90 at least for one year or so.
Currently crude oil is trading at $ 71-74 per barrel that is almost 50% less than its level of $147 per barrel, within 3 months duration. People are quite confused about the price movement of Crude Oil prices. Before coming to any deciding point, first let me put some facts and figures related to Crude Oil prices:
US alone consume 25% of total world output of Crude Oil. And, there are widespread signs of demand destruction in the largest consumer of oil – US.
Oil, too, is a cyclical business; the length of cycle may vary, but in the end it has to come down based on efficient market theory.
The Crude Oil market is well supplied and this year its production; even after all type of supply constraints; has increased or going to increase by some1.5-2%. In other words of demand and supply, there is no big gap – if any – between the two.
Oil spending as a share of the Global Economy has risen to > 7%, a level last seen in late 1979. And, What happened next is from 1980 to 1983 the consumption of oil fell by 10%. This time – if the current economic situation of looming depression persists – its consumption may fall by more than 10%. For Example US retail gasoline demand last week fell more than 9 % YoY for a second straight week as consumer spending slowed.
Developing and emerging countries like China, India and Indonesia etc not able to sustain the ballooning oil subsidies any longer and have already passed some burden on end user and planning to relate domestic prices with world market price changes.
Index speculators who are widely blamed for commodity price movement world over are now not in position to manipulate prices much following the credit crisis in USA.
Chinese demand has starting decreasing after Olympic completion.
Oil demand is inelastic in short run but not in long run.
Higher prices have done what economics would predict – stimulated efforts to increase supply, companies have expanded their exploration budgets. Oil producing nations have announced new projects. Drilling activity is at a high level both off shore and on land.
All the developed and developing nations, especially countries comprising in G –20 have started taking serious steps towards reducing their dependence on Crude Oil. Whether its nuclear energy or wind energy or solar energy, they have started exploring maximum benefits obtained from these alternatives. Moreover, they have taken steps to increase their bio - fuel production whether from corn, maize or sugarcane or Zetropha or even algae. Algae is supposed be the best and most efficient of all the options from which bio – fuel can be produced.
OPEC’s production has shown dwindling movement in their production over different years.
Finally, summarizing on the basis of what is mentioned above; it will not be a surprise if it see Apr-Jul 07 level of 64 – 66 $/ bbl in a month or two (watching the current economic depression scenario).
On the other hand, still any nation of the world whether developed or developing has not got something concrete as an alternate of Crude Oil and even in the near future they will substantial depend upon Crude Oil to meet their energy needs though its right that they have started taking serious steps to reduce dependence on crude oil. Second, Two third of Oil reserve remains with Middle East; one of the most unstable region of the world. Third, Russia, a major non – OPEC producer, has expanded state control over the oil sector. Third, in the recent time violence has cut production by a quarter in Nigeria and Venezuela etc. Fourth, the depreciation in the value of dollars. Considering some other points also of the gray side of Crude Oil, It will be difficult to sustain oil prices above $ 100 per bbl. But, one thing is clear; it will bounce back from the level of $ 66 and will trade between and or around $ 80 – 90 at least for one year or so.
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