Forecasts for oil prices depend on economic outlook

Bob Tippee
Editor

Guess the question from the answer: It all depends on the global economy.

If you work in the oil and gas business, you haven't been paying attention to developments around you if you didn't respond with this: When will oil prices quit falling?

Marker crude prices dropped below $40/bbl this week after two developments that normally would strengthen oil values.

In the first of those developments, the Organization of Petroleum Exporting Countries announced its biggest production cut ever.

If fully implemented, the action would remove enough oil from the market to avert a catastrophic inventory build.

But OPEC members seldom implement production cuts fully. That partly explains why crude prices fell after OPEC's announcement.

In the other development that normally might boost crude prices, the US Federal Reserve cut the interest rate on interbank loans to almost nothing. The dollar's value plunged. Buying a barrel of oil should require more dollars than before. But oil prices still fell.

The oil market, at the expense of everything else, seems focused on demand and its relationship to the global economy. Rightly so. The economy looks grim.

Indeed, assumptions about economic growth drive predictions for average oil demand in 2009.

Three important forecasting entities differ interestingly in predictions published in December. The International Energy Agency sees a slight gain in average 2009 demand for oil, to 86.3 million b/d.

The US Energy Information Administration and OPEC both see slight declines. The lower of those two forecasts is EIA's: 85.3 million b/d.

That larger-than-usual 1 million b/d difference reflects the uncertainty now terrorizing traders.

It largely results from divergent assumptions for economic growth: 2.1% for IEA, which uses the International Monetary Fund's projection; 0.5% for EIA; and 1.5% for OPEC.

IEA points out, "Should the recession prove to be more prolonged than expected, this [demand] prognosis could be further revised down."

The obverse, though, is worth considering: With supply limits in place and the dollar down, early economic recovery—unexpected, yes, but not out of the question—would jerk oil prices back up quicker and by more than anyone now thinks possible.

This feature will appear next on Jan. 2, 2009.

(Online Dec. 19, 2008; author's e-mail: bobt@ogjonline.com)

Related Articles

US drilling slump a tough start to market correction

03/20/2015 Two changes essential to reversal of a sagging oil market are coming into view: Supply expectations are falling, while demand looks—well, at least ...

API: February US petroleum demand is highest since 2008

03/20/2015 Total US petroleum demand reached an average 19.3 million b/d in February—the highest level for the month since 2008, the American Petroleum Instit...

MARKET WATCH: NYMEX crude oil prices resume decline

03/20/2015 US light, sweet crude prices fell on Mar. 19 on the New York market, which analysts attributed to expectations that crude oil inventories—already a...

Senate crude exports hearing raises price, logistics, safety issues

03/19/2015 Potential consumer price impacts dominated a US Senate Energy and Natural Resources Committee hearing examining whether to allow more exports of do...

Transocean reports plans to scrap four rigs, stack four more

03/19/2015

Transocean Ltd. plans to scrap four of its offshore drilling rigs and stack four others, according to its latest fleet status update.

Survey finds US refiners capable of processing more light, sweet crude

03/19/2015 US refiners have more than enough capacity to process the growing volumes of light, sweet crude oil that will be produced in the next few years, a ...

MARKET WATCH: NYMEX crude oil prices have short rally

03/19/2015 US light, sweet crude prices rose more than $1/bbl on Mar. 18 after the US Federal Reserve said it was in no rush to raise interest rates. But crud...

Azerbaijan lets contract for refining, petchem megacomplex

03/18/2015 State-owned State Oil Co. of Azerbaijan Republic (SOCAR) has let a contract to Fluor Corp. to provide project management contractor services for it...

UK budget includes oil and gas tax relief

03/18/2015

The UK government has delivered on promises made late last year to ease the tax burden on the struggling offshore oil and gas industry.

White Papers

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by

The impact of aging infrastructure in process manufacturing industries

Process manufacturing companies in the oil and gas, utilities, chemicals and natural resource industri...
Sponsored by

What is System Level Thermo-Fluid Analysis?

This paper will explain some of the fundamentals of System Level Thermo-Fluid Analysis and demonstrate...

Accurate Thermo-Fluid Simulation in Real Time Environments

The crux of any task undertaken in System Level Thermo-Fluid Analysis is striking a balance between ti...
Available Webcasts


Prevention, Detection and Mitigation of pipeline leaks in the modern world

When Thu, Apr 30, 2015

Preventing, detecting and mitigating leaks or commodity releases from pipelines are a top priority for all pipeline companies. This presentation will look at various aspects related to preventing, detecting and mitigating pipeline commodity releases from a generic and conceptual point of view, while at the same time look at the variety of offerings available from Schneider Electric to meet some of the requirements associated with pipeline integrity management. 

register:WEBCAST



On Demand

Global LNG: Adjusting to New Realities

Fri, Mar 20, 2015

Oil & Gas Journal’s March 20, 2015, webcast will look at how global LNG trade will be affected over the next 12-24 months by falling crude oil prices and changing patterns and pressures of demand. Will US LNG production play a role in balancing markets? Or will it add to a growing global oversupply of LNG for markets remote from easier natural gas supply? Will new buyers with marginal credit, smaller requirements, or great need for flexibility begin to look attractive to suppliers? How will high-cost, mega-projects in Australia respond to new construction cost trends?

register:WEBCAST


US Midstream at a Crossroads

Fri, Mar 6, 2015

Oil & Gas Journal’s Mar. 6, 2015, webcast will focus on US midstream companies at an inflection point in their development in response to more than 6 years shale oil and gas production growth. Major infrastructure—gas plants, gathering systems, and takeaway pipelines—have been built. Major fractionation hubs have expanded. Given the radically changed pricing environment since mid-2014, where do processors go from here? What is the fate of large projects caught in mid-development? How to producers and processors cooperate to ensure a sustainable and profitable future? This event will serve to set the discussion table for the annual GPA Convention in San Antonio, Apr. 13-16, 2015.

This event is sponsored by Leidos Engineering.

register:WEBCAST


The Future of US Refining

Fri, Feb 6, 2015

Oil & Gas Journal’s Feb. 6, 2015, webcast will focus on the future of US refining as various forces this year conspire to pull the industry in different directions. Lower oil prices generally reduce feedstock costs, but they have also lowered refiners’ returns, as 2015 begins with refined products priced at lows not seen in years. If lower per-barrel crude prices dampen production of lighter crudes among shale plays, what will happen to refiners’ plans to export more barrels of lighter crudes? And as always, refiners will be affected by government regulations, particularly those that suppress demand, increase costs, or limit access to markets or supply.

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected