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With the price of crude oil falling to $56.58 (U.S.) a barrel on Wednesday, down $2.75, the energy market is clearly rattled by the effect of lower consumption amid the global economic slowdown. Carl Weinberg, chief economist at High Frequency Economics, believes that nervousness over the price of oil could rise with the release of the International Energy Agency's monthly forecasts on supply and demand, due out on Thursday.
“We should expect the IEA's markdowns to be startling, since the latest economic growth forecasts from the IMF, the OECD and others have been startling,” he said in a note. “Thus, tomorrow should be a startling day for oil traders.”
He noted that OPEC has already agreed to a cut in its production quotas, amounting to a 5 per cent slice, but the cuts haven't kicked in yet and have certainly not boosted the price of oil, which stood at about $60 a barrel when the cuts were announced at the end of October.
At the same time, Mr. Weinberg doesn't have much faith in the cartel to maintain production cuts, especially among its smaller members.
“This is what happens in cartels: When prices fall, everyone has an incentive to cheat – to boost production – in order to support revenues,” he said. “Cartels are inherently unstable.”
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Frank Horgos from Warren, MA, United States Outlying writes: As the petroleum reservoir engineer, oil banker who moved to Calgary in 1965 to set up an oil financing department at the Mercantile Bank of Canada encouraging small Canadian companies like Banff Oil, Dome Petroleum, Ranger Oil, Bow Valley, etc to get agressive buying oil producing properties with development prospects since the US would be needing all the oil Canada could produce and in 1969 and again in 1999 based upon my world oil supply estimates and reported rapidly rising world oil demand growth trends spurred on by low, far below inflation adjusted oil price levels was able to predict worldwide oil shortages in 1973 and 2003 that promised to double and triple oil prices, I find it incredulous that anyone would place any importance these days on what the IEA has to say about anything to do with world oil supply and demand forecasts. Back in 2000 the IEA was predicting world oil demand in year 2020 at 120MMBPD when anyone with two brains to rub together would conclude after looking at reported oil industry statistics that fifteen years of average $15/B oil prices from 1986 to 2000 resulted in the total destruction of the U.S. and international oil industries' infra-structures making it impossible that world oil supply that stood at 86MMBPD in 2000 could ever reach 120MMBPD by 2020. So far this year the IEA has had to lower its world oil demand forecasts monthly as high oil prices caused strictly by commodity speculators and a U.S. economic recession caused steadily declining oil consumption rates around the world! Screwing around with oil prices like the U.S. did starting in 1958 and the Group of Seven Industrial Nations did in 1986 were what caused the 1973 and 2003 world oil shortages and subsequent sharp rises in oil prices. Academics fail to recognize what oilfield geologists have long known from analyzing subsurface structures that "for every action there must be an equal and opposite reaction".
- Posted 12/11/08 at 8:11 PM EST | Alert an Editor | Link to Comment
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C. M. from London, Ontario, Canada writes: Frank, you've certainly won the "longest sentence award". I was almost gasping for breath when I got to the end of that first one, but hey, what do I know ? I am stuck with just one brain and not "two brains to rub together" :>)
- Posted 13/11/08 at 12:12 AM EST | Alert an Editor | Link to Comment
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