JohnniePhenom

A $40 Bottom in Oil?

I have a hard time believing oil will make it to $40, much less stay below $80 due to a few reasons. First you have the global demand aspect. Although the global economy has slowed, asia is still growing at ~7%, this region and the rest of the developing countries will require oil, coal, etc...as economies pick back up to continue economic growth and increased infrastructure development. The second being OPEC. you have a large discrepency in what the price is that countries need to, or are willing to, accept in order to maintain their economy and infrastructure. The above mentioned $40 maybe true for Saudi Arabia, Abu Dhabi etc...but it's probably closer to ~$50+ if anything (although Saudi Arabia is playing more of political game in regards to prices and demand destruction). But countries like Iran and Venezuela must have prices at $100+ a barrel to sustain their infrastructure as 95% of venezuela's export earnings come from oil and 85% of Iran's government revenue comes from oil (50% for gov't rev. for venezuela). On the complete opposite side you have quatar who only needs $10 a barrell to keep a positive trade balance (but this is also due to the fact they are sitting on one of the largest natural gas deposits in history and the possible formation of a natural gas cartel, plus they don't have much influence on oil prices). Next you have to take into consideration that oil is priced in dollars. As the valuation of the dollar drops the price of oil will tend to increase (generally the same inverse relationship seen with the dollar and gold). A decrease in lending and capitalization has caused the recent increase in dollar valuation, as the bailout money pours in there will be an increase in the supply of dollars in circulation resaulting in a decrease in the value of the dollar, which can inturn put upwards price pressure on oil......