A Giveaway Oil Market

By Brad Zigler

By now, everyone should realize that markets taketh away what they giveth. And, th-uffering th-uccotash, did the markets taketh way in this week's opening round. Yesterday's fresh insult sent capital looking for refuge in Treasuries and gold and out of stocks and commodities, most particularly, crude oil.

Remember crude oil? Remember how its barrel price was on a trajectory for $200? Well, now the U.S. government's Energy Information Administration is forecasting - barring a wholesale global economic collapse, mind you - crude prices to average $112 a barrel in 2008 and 2009.

I know you saw spot crude settle below $88 yesterday, but that still left the benchmark's year-to-date average price at $113 a barrel. And, if EIA forecasts are to be believed, apparently headed a dollar lower.

Spot Crude Oil Prices Vs. Quarterly Backwardation

The mathematical prospects for bringing the average down a buck are intriguing. If prices flatline from here - $88 a barrel - through New Year's, we'll end up with an average price of $107, well below the EIA forecast. We'll need to average about $109 a barrel to finish out the year on the government's target.

So, should you buy crude now, hoping for a $21 pop?

Well, keep in mind that the $112 forecast is being made by the same government that brought you monetary inflation of 10.7% to date this year.

U. S. Monetary Inflation Vs. Gold Price

Want to call your broker now?

Comments

[byrnemm:]

I need ultra-laymens terms to figure this one out. What is the author trying to say?

2008 Oct 07 04:37 PM

[User 189732:]

From the looks, one would think oil is a great buy - then you realize you have to believe the government will be correct for once in order for the rebound to come to fruition.

I think.

2008 Oct 07 08:36 PM

[January Thaw:]

Anyone who tries to predict the price of oil next year...well, I've seen that
one before too.

2008 Oct 08 05:47 PM

[Managing Ed...:]

But here, were discusssing THIS year's oil price. The year-to-date aveerage price of spot WTI crude is now $112.73/bbl. EIA is essentially saying that oil price action price for the balance of the year must such that the average will fall another 73 cents. If prices, however, stay at the current sub-$90 level, the average price will end up lower. Oddly enough, crude prices must RISE at some point to LOWER the average. Capice?

2008 Oct 10 10:12 AM