My simplest contest to date: On what day will oil prices hit $100 a barrel?
Please express your
wild guess sophisticated prediction in terms of number of days from January 1, 2009.
While I know that each of you has special knowledge and expertise that allows you to make such market forecasts with startling accuracy, I’m really going for a “wisdom of crowds” thing here [yes, I know, recent events in the economy and stock market suggest the crowds don't actually have much wisdom, but stay with me on this]. So I’m planning to come up with a statistical average of all the guesses — and that can’t be done easily if you give me dates.
The winner gets a post on Climate Progress (!) — plus a figurative laurel and hardy handshake, as Mel Brooks would say.
My guess is 545 days, mid-2010 (roughly my 50th birthday — and I do mean roughly).
The price of oil has really been bouncing around in the last week. Here is some useful background from a recent Greenwire article:
NEW YORK — Market experts are predicting that global oil prices will trend upward this year as producers fall into line behind supply cut mandates, and low gasoline prices push demand up.
Barring a much more serious deterioration in the world economy, many analysts suggest that resurging demand for gasoline in the United States, the world’s largest oil consuming country, and falling overcapacity due to production cuts announced by the Organization of Petroleum Exporting Countries (OPEC) will lead oil prices to return to the $70-a-barrel range sometime soon.
Many of those experts have mixed track records. From record highs of just over $147 a barrel for crude last July, many predicted that demand destruction would see the cost per barrel ease somewhat to settle in the $80 to $100 range by the end of 2008.
Instead, the turmoil in financial markets and subsequent bank bailouts caused prices to plummet more than 60 percent in the second half of 2008. Yesterday, crude prices settled at just below $50 a barrel in trading at the New York Mercantile Exchange (NYMEX), spurred upward by political instability in the Middle East.
But most energy analysts say the recent cuts by OPEC are more significant than traders are taking into account. Signs that OPEC members are cooperating better than they have in the past and keeping to their reduced quotas are now leading many to believe that the cartel may be restoring its traditional role in controlling wild price swings.
In the previous strong markets, “OPEC has had no impact on the oil prices since 2004,” said John van Schaik, New York chief of the market information company Energy Intelligence Group Inc. “Now, with spare capacity rising again, yes, now OPEC is becoming more relevant again.”
Van Schaik called the 3.1-million-barrels-per-day cut in output by the cartel “dramatic.” If OPEC members largely meet their targets, total output would be reduced by about 4 million barrels a day from the July 2008 price highs, a roughly 12 percent cut in OPEC output, representing about 4.6 percent of total global supplies.
In a note to clients, Tim Evans, an energy analyst with Citigroup, predicted that the OPEC cuts will result in a demand deficit of at least 1.5 million barrels a day during the beginning of 2009, eventually growing to 2 million barrels a day or higher by the second half of the year, depending on whether oil producers vote for more cuts in production.
“In time, we see prices firming to perhaps the $70-per-barrel mark by the end of the second quarter and a further rally in the second half that could approach $90, a level that would signal OPEC for more production, instead of less,” Evans said.
Investors seem to largely agree with this forecast. In a survey by Barclays Capital taken from a gathering of energy market players last month, most respondents said they believed the current low pricing environment was temporary. Four in five said they expected crude oil prices to average above $75 a barrel for 2009.
There are some dissenters — analysts at Cambridge Energy Research Associates (CERA) believe that spare capacity will continue to rise and could reach 7 million barrels a day, or 8 percent of world demand, by 2010 if market trends hold.
Virtually all energy market players are bullish on oil in the long run, though. Last year’s dismal assessment of future oil production by the International Energy Agency, with data showing that output from the world’s largest fields is falling faster than predicted, only helped to fuel a general consensus that energy prices will rebound so long as oil remains the world’s dominant fuel source.
Observers admit to a commodities bubble
For the broader energy commodities markets, the past several years have proven a roller coaster in which traditional drivers tell just part of the story. At times, players have insisted that supply-and-demand fundamentals were behind the rapid ascent of oil, driven mostly by rising consumption in China and India. But today many observers admit that a speculative frenzy was behind much of the “commodities bubble” that lasted for most of this decade.
“The tight balance between supply and demand in 2002-08 was not the only factor driving the increase in oil prices,” analysts at CERA acknowledged in a December assessment.
Enthusiasm for commodities helped flood the exchanges with new activity. In 2008, the weakening value of the dollar and fears of a slowing U.S. economy, along with the continuing bear market in equities, drew a whole new class of investors to commodities and to oil in particular.
“There was very little rationality in this market for the past three years, ” said van Schaik.
Despite the ultimate price fallbacks, 2008 was a record year for activity in raw materials, with trading volume on NYMEX 19 percent higher than the previous year, according to data by CME Group.
But trading in the fourth fiscal quarter erased prior price gains. The Dow Jones-AIG Commodity Index was down by more than 8 percent in December and more than 39 percent compared with the end of 2007. The Dow-AIG Crude Oil Index has led the slide, falling by almost 33 percent. Trading volume is way down, due partly to the holiday season but mostly because investors have largely backed out of commodities in the search for safer harbors.
For the record, I am going to use the NYMEX price, which is West Texas intermediate crude.
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