Peak Oil is You

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Page added on December 29, 2008

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Peering into oil’s crystal ball

Saudi Arabia, the most influential member of the Organization of Petroleum Exporting Countries, is looking for an oil price of $75 a barrel. It’s not likely to reach that goal in 2009.

A year ago, oil was around $100. Some prognosticators expected the price to rise a lot, and some looked for a sharp fall. Both were right. The price per barrel first shot up to $147 and then fell back vertiginously to $40. It’s enough to make anyone give up the prediction game.

That game is particularly tough in oil because the price is not set simply by the traditional factors of supply and demand. Financial flows, including foreign exchange and availability of credit, play an important role.

The supply dynamics seem to support a case for a higher price. OPEC says it will implement a record-busting cut of 4.2 million barrels per day in the supply of oil – about 4 percent of the world’s total.

If they follow through on their commitment, analysts say, the cut would lead to a shortage of about 1.7 million to 2 million barrels a day in 2009. In theory, that would raise the price, perhaps close to $75 a barrel.

The problem is that few believe OPEC will follow through on its cuts, although the cartel claims it has already cut 1.7 million barrels a day of the initial 2 million barrels a day it pledged in September. But cutting another 2.2 million barrels on top of that would be a tall order for strained OPEC governments.


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