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

Severance tax would backfire, Pennsylvania association leaders warn

12/17/2014 Enacting a severance tax aimed at Pennsylvania’s unconventional natural gas activity would substantially harm the commonwealth beyond the industry ...

MARKET WATCH: Oil prices held steady on NYMEX awaiting crude inventory

12/17/2014 Oil prices held fairly steady on the New York market in Dec. 16 trading while Brent crude oil prices fell by more than $1/bbl on the London market....

Encana to focus spending on four core shale assets in 2015

12/16/2014 Encana Corp., Calgary, reported plans to spend $2.7-2.9 billion on its capital budget with roughly 80% of this total directed towards four of what ...

Cenovus trims budget, slows oil sands work

12/16/2014 Cenovus Energy Inc., Calgary, is trimming its capital spending in response to declining crude oil prices and will slow development of some of its t...

MARKET WATCH: Oil prices continue falling awaiting economic statistics

12/16/2014 Oil prices on the New York market dropped in Dec. 15 trading following reports of supply disruptions in Libya and awaiting reports of economic stat...

MARKET WATCH: OPEC basket price closes below $59/bbl

12/15/2014 The average crude oil basket price for the 12 members of the Organization of Petroleum Exporting Counties closed below $59/bbl on Dec. 12 while cru...

TAEP: TPI still peaking, but ‘contraction unavoidable’ as oil prices fall

12/12/2014 The Texas Petro Index (TPI), a composite index based on a comprehensive group of upstream economic indicators released by the Texas Alliance of Ene...

MARKET WATCH: NYMEX crude oil price extends slump

12/12/2014 Crude oil prices extended their slump on the New York market with a Dec. 11 settlement of less than $60/bbl for January, and prices continued downw...

US needs more data before ending crude export ban, House panel told

12/11/2014 Much more environmental impact information is needed before the US can reasonably remove crude oil export limits, a witness told a House Energy and...

White Papers

AVEVA NET Accesses and Manages the Digital Asset

Global demand for new process plants, power plants and infrastructure is increasing steadily with the ...
Sponsored by

AVEVA’s Approach for the Digital Asset

To meet the requirements for leaner project execution and more efficient operations while transferring...
Sponsored by

Diversification - the technology aspects

In tough times, businesses seek to diversify into adjacent markets or to apply their skills and resour...
Sponsored by

Engineering & Design for Lean Construction

Modern marketing rhetoric claims that, in order to cut out expensive costs and reduce risks during the...
Sponsored by

Object Lessons - Why control of engineering design at the object level is essential for efficient project execution

Whatever the task, there is usually only one way to do it right and many more to do it wrong. In the c...
Sponsored by

Plant Design for Lean Construction - at your fingertips

One area which can provide improvements to the adoption of Lean principles is the application of mobil...
Sponsored by

How to Keep Your Mud System Vibrator Hose from Getting Hammered to Death

To prevent the vibrating hoses on your oilfield mud circulation systems from failing, you must examine...
Sponsored by

Duty of Care

Good corporate social responsibility means implementing effective workplace health and safety measures...
Sponsored by

Available Webcasts


On Demand

Optimizing your asset management practices to mitigate the effects of a down market

Thu, Dec 11, 2014

The oil and gas market is in constant flux, and as the price of BOE (Barrel of Oil Equivalent) goes down it is increasingly important to optimize your asset management strategy to stay afloat.  Attend this webinar to learn how developing a solid asset management plan can help your company mitigate costs in any market.

register:WEBCAST


Parylene Conformal Coatings for the Oil & Gas Industry

Thu, Nov 20, 2014

In this concise 30-minute webinar, participants have an opportunity to learn more about how Parylene coatings are applied, their features, and the value they add to devices and components.

register:WEBCAST


Utilizing Predictive Analytics to Optimize Productivity in Oil & Gas Operations

Tue, Nov 18, 2014

Join IBM on Tuesday, November 18 @ 1pm CST to explore how Predictive Analytics can help your organization maximize productivity, operational performance & associated processes to drive enterprise wide productivity and profitability.

register:WEBCAST


US HYDROCARBON EXPORTS Part 3 — LNG

Fri, Nov 14, 2014

US LNG Exports, the third in a trilogy of webcasts focusing on the broad topic of US Hydrocarbon Exports.

A discussion of the problems and potential for the export of US-produced liquefied natural gas.

These and other topics will be discussed, with the latest thoughts on U.S. LNG export policy.

register:WEBCAST


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