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Page added on July 30, 2009

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No confusion on where oil price is headed

Anyone paying attention to the noisy talking heads who populate TV biz panels is bound to come away deeply confused when the subject turns to oil prices.

We keep hearing that demand is essentially flat in the developing world and shrinking everywhere else.

Production isn’t moving much in any direction and inventories are piling up like so much Toronto garbage.

With the global economy deep in the doldrums, $20 (U.S.) crude must surely be just around the corner.

Yet crude prices have actually been on the rise again in recent days, climbing above $68 a barrel yesterday.

The bearish types insist this undoubtedly stems from misplaced faith in economic prospects in the United States and that the hike can’t be justified by the commodity’s fundamentals.

Others with more conspiratorial leanings, including the Nobel Prize-winning economist Paul Krugman, CNBC commentator Jim Cramer and more than a few policy makers, say the fault lies with financial speculators, who need to be reined in before they cause the fragile economic recovery to come crumbling down on our heads.

Yet at least one prominent energy analyst says the price is headed in the right direction, based on actual supply and demand.

He goes on to say that speculators have precious little to do with the recent runup, and that those insisting oil is wrongly priced are relying on lousy data.

That would be Henry Groppe, 83, who has been tracking the complex world of oil and gas production, consumption and pricing for more than half a century.

Globe and Mail

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