Alexandre Kateb

Reality Hits Oil Market, Dollar Could Benefit

I agree with Georealist. From a rational economic point of view, the correlation between oil and the dollar goes from strong dollar to weak oil and NOT the opposite.

I don't know if we already reached "peak oil" but what is sure is that the world still relies heavily on oil and OPEC will control 50% of oil production in the near future up from 40% today. This is all the more true as major non-opec oil producers such as Russia (which produces the same amount as Saudi Arabia) have started to invest in oil production only in 2006-2007. This means new Russian oil output will not be on the market before a decade maybe.

Besides, the incremental demand for oil comes from China not from the US and China will consume more and more oil in the coming years. Don't get fooled by all the "renewable/clean energy" mantra. Every reasonable expert and analyst predicts that oil demand will grow considerably. Peak demand for oil will not be reached before 2 or 3 decades.

In the short term, oil demand will be reduced due to the recession and the market may overshoot on the downward side as well as it overshoot on the upward side in the summer. The price of a barel could fall to as low as 30 USD a barrel somewhere between now and H1 09 and there will surely be a lot of volatility but I expect the price of oil to bounce back to 100 USD a barel in H2 09. If I were an oil trader I would play the overshooting by selling (being short on) June 09 futures and buying (being long on) December 09 futures.