Why I Won’t Pay a Penny Over $70 for Oil
by Robert Williams, Contributing Editor
Wednesday, September 30, 2009
For the third consecutive month, The International Energy Agency (IEA) released an upward revision of its forecast for world oil demand. It juiced up August’s estimate by 500,000 barrels a day, citing better-than-expected economic growth in developing Asian economies and North America.
So this rejuvenated demand for oil will have a barrel trading north of $90 in the weeks ahead, right? (The current market price for a barrel of oil is about $72.)
Not so fast. Two factors will likely hold price down through the end of the year.
Factor #1: When the financial crisis hit, and oil demand waned, suppliers began storing the massive inventory excess on tankers. OPEC said that, “Some 60 million barrels of products, mainly middle distillates, are being held in floating storage, largely off Europe.” As our research indicates, we’ve still got plenty to burn through.
Factor #2: The number of active oil rigs was cut by nearly half in the wake of Wall Street’s meltdown. But given the recent increase in demand, the global rig count – although modestly – is ticking upward again. Which means more oil will be coming out of the ground.
On news of the IEA’s revised forecast, Goldman Sachs said that it expects oil prices to reach $85 a barrel by the end of the year.
For the record, I’m a longer-term oil bull. But in the short term, Goldman is misreading the market.
Ahead of the tape,
Robert Williams
Related Investment U Articles:
- Wanted: New Sources of Crude Oil
- Upward Pressure to Remain on Brent Crude in 2012
- With Oil Falling, Now’s the Time to Strike
- North Dakota Oil Production Rivals OPEC
- The U.S. Shale Oil Boom
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In addition to once being a full-time trader of equities and equity derivatives, Robert Williams has served as the lead financial analyst for a Forbes top-50 private corporation and an analyst for the endowment of a major academic institution. He's also been profiled in such books as Trade with Passion and Purpose and Alexander Green's The Secret of Shelter Island. 
