Oil Price

A weakening US economy is spearheading an expected sharp
contraction in global economic growth and consequent
substantial moderation of oil demand. With excess crude
capacity now rising markedly, the oil price is weakening. The
industry has yet to enter a typical bust following the boom
period. The dramatic 52% plunge in the oil price since the
summer high prints of $145 bl. reflects the popping of a
speculative frenzy in this market. Oil never reached the full
scale bubble price of $170 bl., but the market was bubbly and
destructive enough.

OPEC will meet later this week to look at cutting its output to
arrest the price plunge. Experienced hands know that it is
primarily the Saudis who can "afford" cuts, and that whatever
actual production curtailment may come will fall to them and
their accountants. In the meantime, oil demand is likely to
fall further.

There are now forecasts of $50 -60 a bl. for early 2009. These
projections merely extend the crash trendline in place since
July and recognize that oil price busts have toted 60% on
occasion in the past. These projections are a bit steep based
on the fundamentals, but are not so when you consider the
shakeout underway among the new generation of commodites
investors who got caught up in the champagne waltz up to $145.

Near $70 bl., oil is now as deeply oversold as it was ridiculously
overbought at this summer's high. No grey bearded trader would
be shocked at a $10 -20 bl. pop in price over the next couple of
weeks.

For a weekly price chart, click here.