$60 a Barrel Oil in 2009?

Let's play a little parlor game. What is the likelihood that oil will average $60/barrel next year?

Pretty likely, right? In fact, that's the average forecast of 33 energy analysts surveyed recently by Bloomberg News. It sounds quite reasonable, given that oil was trading for $146/barrel just a few months ago.

OK, now here comes the fun part: What is the likelihood that oil prices will rise 53% next year from current levels?

Impossible, right? After all, we're facing global economic recession. Consumer confidence is the worst it's been in history, everybody is scaling back and OPEC can't cut supplies enough to keep pace. Heck, things are so bad they're using supertankers as floating storage tanks! There's no way oil's jumping 53% next year!

Except, of course, the two figures are identical. $60/barrel is a 53% increase from current levels.

So why do people think $60/barrel is so achievable? It must stem from the speculative pop that pushed oil prices above $140/barrel just a few months ago. $60/barrel oil seems downright cheap against that $146/barrel peak.

But put into more-realistic percentage terms, $60/barrel is a very optimistic scenario. Oil prices have only averaged above $60/barrel in seven of the past 60 years. Two of those seven years were in 2006 and 2007, but before that, oil hadn't averaged $60/barrel since 1983.

That's not to say that $60/barrel is out of the question. The markets have been so volatile that anything is possible.

But it's not a shoe-in. And don't let people hoodwink you with numbers into believing that it's so.

Comments

[winterisle:]

there is a proposal to raise the gas tax ten cents-why not put a $29.00 to $30.00 per barrel tariff on all foriegn oil imports instead ?

Jan 02 08:25 AM

[winterisle:]

there is a proposal to raise the gas tax ten cents-why not put a $29.00 to $30.00 per barrel tariff on all foriegn oil imports instead ?

Jan 02 08:25 AM

[john s. gordon:]

it's possible. iranian theocratic dictatorship can close strait of hormuz anytime they want.
> jack

Jan 02 08:25 AM

[Ferdinand E...:]

I think that I can sell $60/b to my students this spring. Of course, most of them will believe anything if it is presented with a smile. I wonder though about OPEC. Having tasted an oil price of $150 they might reason that if the global macroeconomy has improved to the extent that they can get 60, maybe they should go for 70-75, which they seem to be convincing themselves that they need. Of course the joker in the pack is the global macroeconomy, and some observers seem the think that it will get worse before it reaches a point where 60 dollar oil makes economic sense.

Jan 02 08:46 AM

[Dr. C.:]

Don't forget that to average $60 for the year the price must rise to $80 to offset these days trading at $40.

So the forecasts are essentially implying a 100% rise between bottom to top during the year.

A nice trade.....

Jan 02 09:04 AM

[Dr. C.:]

additional comment....

or, if not trade to $80, then trade above $60 for an extended period of time to offset the lower prices at the start of the year.

Jan 02 09:08 AM

[sleepless_o...:]

Fill all your gas tanks and wait.

Jan 02 10:18 AM

[Guero:]

Are these the same analysts that earlier predicted $200 bbl in 2009? Which leads me to another question....what do you call 100 analysts at the bottom of the ocean?

Jan 02 10:27 AM

[scotty1560:]

oil could be "over shooting" on the downside and oil has so many external factors
in play from geopolitical to hurricanes in the gulf to the condition of the economy to
the strength of the dollar...harder to predict the timing..summer?

Jan 02 10:49 AM

[macsmart:]

With gas prices so low, people will start driving again by May. In addition, due to all the demand destruction, numerous projects by every E&P have been shut down thereby reducing supply for this summer.

Oil will return to $60 or even $70 by this summer.

Jan 02 10:53 AM

[1977°C:]

I am sure Oil will be 60$ but before it will be 10$.

Jan 02 12:12 PM

[De Graaf:]

The overspeculation in July '08 was only possible with the consensus belief of emerging market demand together with established Western society demand. Also there was Shell who had lower than expected reserves and double digit growth numbers from BRIC countries.

Whats left of that 'perfect' storm without leverage? Without worldwide demand? And with oil tankers used for oversupplies, deep-sea exploration still advancing and money being spend to complete projects!?

There is going to be enough supply for 2009 keeping prices down. Speculation of the longs is off for now. The only issue surrounding oil and every other price for commidities out there is inflation. The Federal troublemaker.

IF monetary deflation is countered appropriately with the current FED policy of inflation. We will be seeing $60 dollar a barrel soon enough. Its has nothing to do with demand, only inflating its way out of indebtedness for 2009 if we ever see monetary velocity again this year.
Artificial prices or lets say; quantitive easing. Not for the benefit of us all, but for the benefit of the indebted. That means most of us...note me and not the (US) creditors.

Its a Keynesian story, and I hate it by now. It supplies us with ''phony profits" that actually don't make sence if you correct it for real inflation. Its all for the peace of mind. The easing of pain, the masking of government incompetence of the years. A weak solution for the problems we face in our capitalistic world. It should be forbidden, for the sake of responsibility.

Give me a new world of capitalism, based on gradual prosperity and minor social buffers. Give me a government, so small, it only serves for protection and necessary programs to gradual growth and long term policies for the better. Abandon progressive taxation, and tax every soul at 10 percent. Let capitalism grow out to normal risk taking, not excessive, thereby not growing the gap of the rich and poor. Make sure everybody keeps up. Excess money should be invested for the standards of living of all people, technology and environment. Forget the old American consuming of resources. Use wisely, live wisely and share our love competences with everyone around you for the better.

Until that moment happens, forget oil and buy gold/silver. The only values left in this world since the beginning of mankind.

brgds,

Jan 02 01:40 PM

[scotty1560:]

De Graaf in theory and principle you are correct..that said Jefferson
and Mellon are long dead and with them those fiscally sound beliefs..

I still think with regards to oil that we are in a process of evaluation..
as you say the leveraged boom is over...so now over the course of this
year we find the true value of a barrel is worth and adjust from there..

I look at resources as a necessity for humans...so my theory is tucked some shares under the mattress and keep it there a few years.

As far as gold and living "sustainably" agreed...but I don't see it happening
anytime soon...drive down the freeway, look at the size of yachts in the marinas...look at the salaries the Yankees just paid for ballplayers...
the "mirage" is still there...10-15 years before water and oil seriously impact the standard of living this country has been spoiled with.

gold or silver can be speculated like anything else...think Hunt Brothers..
I'll live or die with natural resources...the gift from mother earth..

Jan 02 02:17 PM

[Urbane Gori...:]

Who would ever have thought that banks or homebuilders would rebound? An yet they did. There are two sectors that have nothing but trouble in the future..... Go figure.

Oil on the other hand is selling pretty much below cost right now. If it weren't for the effects of having too much oil in storage and a weak OPEC, whose members still need cash flow, we'd see higher prices right now. We will see $60 oil this year and probably spikes to $75.

jegan

Jan 02 03:07 PM

[blu:]

It appears that most can not accept the fact that current decreases in demand will not exceed the decreases in supply.

I'm buying oil.

Jan 02 03:44 PM

[mc2406:]

Since the speculators bubble has burst, $60 per barrel oil (on average for 2009) is only possible if one of two things happen-- 1) a middle east flare up drastically decreases supply or 2) the world economy suddenly turns up.

Neither alternative has short enough odds for me to wager on.

Jan 02 04:53 PM

[scotty1560:]

questions to ponder....decisions to make..crystal ball says?...
pull the trigger?....am I able to sleep at night?
where is Paul Simon when you need him...50 ways to play oil..
staying long for now and taking a nap next to my old Catskills pal..
Rip Van Winkle...more important things to do...worry about these
world affairs in a few years..feeling sleepy about now.

Jan 02 07:26 PM

[einstein p ...:]

A fifty-three percent (53%) move up or down isn't what it used to be, especially over the past six months --- especially in the commodity space and the dry bulk shippers. We've all seen those type of moves, both up and down, occur in a matter of weeks during 2008.

The current price of oil is not sustainable --- recession or no recession. In fact, it's dangerous. The cuts from OPEC were ignored for the most part so a new course of action has begun. Russia, which grew rich during the commodity boom, is already threatening to cut off supplies to Europe. Hamas and Hezbollah are funded by Iran. Coincidentally, Hamas began to lob missiles into Israel soon after OPEC cut and was ignored. The conflict in Gaza could easily boil over and spread throughout the region. There are lots of oil tankers sitting in the Strait of Hormuz that could be targeted, not to mention the Saudi oil fields. Does this scenario sound far-fetched? Maybe. Still, countries like Iran and Russia need oil prices to return to 75-85 dollar a barrel range to be profitable and fund their "social" programs. Mexico, Venezuela, and a host of other countries are in the same position.

Is a 53% rise possible? Of course it is. In fact, I believe that it's on the low side. Oil is going to hit that 75-85 dollar target this year and continue to go up in years to come.

Jan 03 11:15 AM

[DrT:]

Oil wells deplete, even OPEC's. The price eventually has to go to the marginal cost of new production plus a risk profit margin. The day the world economy shows signs of recovery you would not want to be short oil. All the cancelled projects and drilling will come back to haunt the economy.

Jan 03 11:26 AM

[longoil:]

We'll see $100 oil by the end of 2009 or 2010.
Just as $147 was an overshoot, $42 is an undershoot.
Supply might temporarily exceed demand, but as economic conditions improve there will not be enough oil to quench the growing global demand. None of the non-conventional oil producers involved in deep sea oil and oil sands seem to be shelving their projects.

I find it very scary that incompetent run businesses like banks and auto mfg'ers feel they are entitleed to government bailouts, while well run oil companies who did not ask for bailouts when oil was in the $10 to $20 range prior to 2000, need to by punished by the Obama regime with proposed windfall taxes.

Jan 03 08:16 PM

[Hmm?!:]

I don't know when oil will come back, but it will quite strongly within the next 3 years.

But I did see two statements that I belive are incorrect.

Jegan....... the homebuilders and the banks have not made a comeback yet. Especially considering none of the banks have paid back the Fed a dime yet and real estate prices are still falling.

longoil...... actually oilsands projects are being cancelled and delayed all over the place. But they are also renegotiating a lot of Capex contracts, made when demand was really high. This will only help oil prices more when demand comes back.

Jan 04 02:18 AM