Experts Predict $300 Oil Barrel Not Far Off
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- Business and Economy
- Science and Technology
- 01 / 04 / 2010
Kevin Kerr, Global Commodities advisor of Market Watch, explains that while the global recession and credit crunch have severely impacted global demand for energy, it’s only temporary.
The abnormally large swings in crude oil being registered in the main markets are a situation experts call "contango". This phenomenon occurs when future prices are higher than current prices.
For example: the April 2009 crude oil contract was around $38.10 -while the April 2010 crude contract, crude for delivery a year from the former date, is traded at $50.26. That's a $12.16 spread.
That means major oil companies like Royal Dutch Shell can store oil on tankers and then sell the April 2010 contract at $50.26.
This manoeuvring causes additional volatility throughout the oil curve, as physical oil companies position themselves in the futures markets to take advantage.
Global demand is among the biggest factor driving oil to record levels the last two years, in the opinion of Kerr.
Pent-up demand is exploding in growth areas like China and India. In the US, demand dropped dramatically, but as the economy recovers, it will pick up swiftly. The expert does not mention the demand fuelled by wars in Afghanistan, Iraq and more recently, the one being prepared against Yemen.
Any economic recovery results in higher energy prices. That means $300 crude oil could be one year away or three years away, but certainly not much more, is the conclusion of this expert.
OPEC cut production across the board. At their most recent ministerial meeting, they confirmed current production quotas, but this is not considered strong enough deterrent to the increase in prices.
On the other hand, there's been almost no progress on the march to alternatives. With oil prices at low levels and the market in tatters, the last place investors want to put their money is in the alternative energy space.
Every sector from uranium miners and clean-coal technology to bio-fuels and oil drillers has seen investment and share prices dry up. The call for building of new refineries and pipelines has all but gone silent.
Source: PL
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