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A Hard Rain is Gonna Fall on Oil Prices (Probably)

Michael C. Lynch, Energy Tribune
Since I am renowned (perhaps infamous) as an oil market bear, it is somewhat daunting to write about next year’s price declining when everyone is now waiting for $100 oil. In the past few years, my price forecasts have been undone (in my opinion) by events ranging from Katrina to the ethnic unrest in Nigeria.

At the same time, it is hard to credit the argument that the oil market has experienced a “paradigm shift” in which oil is harder to discover and produce than before, demand is growing much faster, and prices have little effect on demand. Many argue that non-OPEC has peaked, or is near it, and that OPEC’s market share will grow rapidly from now on, so that even if so-called “peak oil” is not here, ever higher prices will be. Thus, many forecasts put long-term prices at or above $60, but it is worth remembering that only three years ago most predicted much lower prices.
(18 December 2007)

$100 Oil: It’s a New Beginning

Michael J. Economides, Energy Tribune
In August 2004 when oil was about $40 per barrel, I predicted outrageously in an op-ed piece that oil would hit “$60 by next winter.” The newspaper editor changed that to $50, saying it was to “protect my reputation.” Well, oil didn’t stop at $60 – just two months ago it hit $80. With the toothpaste out of the tube the market became desensitized, and there’s really no end in sight.

My predictions have always been on the front fringe of bullishness, only to be joined by many who just a year ago were predicting oil would fall to $50. For the last two years, I have been saying that we were one large geopolitical headline away from $100 oil, and it looks like I have become too conservative for my own good. After a long period of gnawing events, of Chávismo and Putinism and continuing warfare in Iraq, the market no longer needs a specific catastrophe for huge hikes in oil prices. And if Israel should attack Iran? Do I hear $150?

Some calming thoughts are in order. The current price spike has nothing to do with any “peak oil” theories. OPEC can still produce a lot more oil than it does today. With proper investment, Saudi Arabia could increase its production by at least 50 percent, and with proper investment and management, Venezuela could more than double its current production to over 6 million barrels per day.
(18 December 2007)

Could OPEC drop dollar for euro?

Rania El Gamal, Kuwait Times
KUWAIT: Could oil producing countries drop the dollar for a more stable currency? Iran’s recent announcement that it would stop using the dollar in its oil transactions made that question a plausible scenario for other oil producers to follow with a weakening US economy and a declining dollar. The depreciating US currency worries oil exporting countries as it means a reduction in the value of their dollar reserves and a loss in revenues with the spiraling oil prices. So could Iran’s decision signal a tren
d for other oil producing countries to follow?

Iran, the world’s fourth largest oil exporter, is urging other members in the Organization of the Petroleum Exporting Countries (OPEC) to also drop the greenback as it is too unreliable. The oil-rich country, argued last month at the OPEC oil ministers meeting, that oil producers are losing revenues because the dollar is performing poorly against the euro. Tehran is pushing OPEC to drop pricing oil in dollars and shift to a basket of currencies, though Saudi Arabia clearly is opposing the notion. Saudi fo
reign minister warned that talking publicly about the dollar’s decline could hurt its value even further.

Iran receives non-dollar currencies for 85 percent of its oil products and is already asking its customers to pay in euro or yen.

…Currencies go through cycles. The dollar is down right now, but once it begins to recover and the euro fall, most of the talk of non-dollar oil pricing will quickly disappear.
(19 December 2007)