gcarter
09-27-2006, 09:48 AM
Breaking News from NewsMax.com
Expert: Oil to $45 a Barrel
Oil prices will plunge to $45 a barrel by the middle of next year, down from their recent level of $66.50, predicts a leading analyst — who says prices could drop even more after that.
This week, oil dipped below $60 a barrel. NewsMax’s monthly investor publication — Financial Intelligence Report — has been warning readers for months that a major oil correction was in the works, and that oil would fall to the mid $40s per barrel.
Now that prediction appears to becoming a reality.
Michael C. Lynch, president of Strategic Energy & Economic Research in Amherst, Mass., believes that the threat of disruptions has added $20 a barrel to the price of crude and as these threats diminish oil prices will fall.
The recent doubling of prices was set in motion four years ago, according to an analysis of Lynch’s views in Forbes magazine. The 2002 strike by Venezuelan oil workers reduced that country's output by about 1 million barrels per day (bpd), and the application of socialist economics there has done little to bring that volume back.
The U.S. invasion of Iraq resulted in another 1 million bpd reduction to an average 2 million. In 2004, China increased its consumption by nearly 1 million bpd to 7.4 million, while unrest in Nigeria took 500,000 bpd off the market.
Then hurricanes Katrina and Rita knocked about 700,000 bpd off-line.
But Lynch says, "these were all one-time transient events that can be fixed or adjusted to" and there's reassuring evidence of adjustment from both supply and demand, according to the Forbes report.
On the supply side, industry spending on exploration and production is up sharply over the last three years, and new oil is coming from almost everywhere.
Oil from a 1 million-bpd field in Azerbaijan recently hit the world markets, for example. In Angola, offshore fields could start pumping 500,000 bpd next year, and fields off Brazil and Algeria will add hundreds of thousands more.
Global production capacity will expand by a net 2 million bpd this year and 3 million bpd in 2007, according to Lynch, 51, whose company advises oil companies, governments, and investment banks.
On the demand side, growth has moderated worldwide due to high oil prices and a slowdown in some industrialized economies. The rate of growth will slow even in China, Lynch forecasts.
All this will give producers time to catch up. Global oil production held on standby has climbed to 2.7 million bpd now, Lynch notes. The Saudis account for 2 million bpd of that, and Kuwait and Abu Dhabi the rest. Lynch sees the cushion climbing to 4.5 million bpd in 2007 as the Saudis bring the Khursaniya field into service.
Elections in Nigeria next April could ease political tensions, resulting in an increase of 500,000 bpd on the world market.
Overall capacity should cover a supply disruption from virtually anywhere in the world — including a blockade of Iranian oil exports — helping to push down the price of oil to $45 a barrel by the second quarter of 2007, Lynch told Forbes.
With lower prices looming, speculators could begin selling oil futures positions, forcing oil prices down further.
Efforts by OPEC to enforce quotas might fail in cash-strapped countries like Venezuela, while Russia, the world’s largest oil producer, isn’t an OPEC member, Lynch points out.
When Russia rebuffed the Saudis' call for a quota cut in 2001, OPEC nations kept production steady, oversupplying the market and sending oil dropping to $21 a barrel.
Lynch sees a similar scenario playing out by the end of next year, and advises that now is the time to go short on oil.
Expert: Oil to $45 a Barrel
Oil prices will plunge to $45 a barrel by the middle of next year, down from their recent level of $66.50, predicts a leading analyst — who says prices could drop even more after that.
This week, oil dipped below $60 a barrel. NewsMax’s monthly investor publication — Financial Intelligence Report — has been warning readers for months that a major oil correction was in the works, and that oil would fall to the mid $40s per barrel.
Now that prediction appears to becoming a reality.
Michael C. Lynch, president of Strategic Energy & Economic Research in Amherst, Mass., believes that the threat of disruptions has added $20 a barrel to the price of crude and as these threats diminish oil prices will fall.
The recent doubling of prices was set in motion four years ago, according to an analysis of Lynch’s views in Forbes magazine. The 2002 strike by Venezuelan oil workers reduced that country's output by about 1 million barrels per day (bpd), and the application of socialist economics there has done little to bring that volume back.
The U.S. invasion of Iraq resulted in another 1 million bpd reduction to an average 2 million. In 2004, China increased its consumption by nearly 1 million bpd to 7.4 million, while unrest in Nigeria took 500,000 bpd off the market.
Then hurricanes Katrina and Rita knocked about 700,000 bpd off-line.
But Lynch says, "these were all one-time transient events that can be fixed or adjusted to" and there's reassuring evidence of adjustment from both supply and demand, according to the Forbes report.
On the supply side, industry spending on exploration and production is up sharply over the last three years, and new oil is coming from almost everywhere.
Oil from a 1 million-bpd field in Azerbaijan recently hit the world markets, for example. In Angola, offshore fields could start pumping 500,000 bpd next year, and fields off Brazil and Algeria will add hundreds of thousands more.
Global production capacity will expand by a net 2 million bpd this year and 3 million bpd in 2007, according to Lynch, 51, whose company advises oil companies, governments, and investment banks.
On the demand side, growth has moderated worldwide due to high oil prices and a slowdown in some industrialized economies. The rate of growth will slow even in China, Lynch forecasts.
All this will give producers time to catch up. Global oil production held on standby has climbed to 2.7 million bpd now, Lynch notes. The Saudis account for 2 million bpd of that, and Kuwait and Abu Dhabi the rest. Lynch sees the cushion climbing to 4.5 million bpd in 2007 as the Saudis bring the Khursaniya field into service.
Elections in Nigeria next April could ease political tensions, resulting in an increase of 500,000 bpd on the world market.
Overall capacity should cover a supply disruption from virtually anywhere in the world — including a blockade of Iranian oil exports — helping to push down the price of oil to $45 a barrel by the second quarter of 2007, Lynch told Forbes.
With lower prices looming, speculators could begin selling oil futures positions, forcing oil prices down further.
Efforts by OPEC to enforce quotas might fail in cash-strapped countries like Venezuela, while Russia, the world’s largest oil producer, isn’t an OPEC member, Lynch points out.
When Russia rebuffed the Saudis' call for a quota cut in 2001, OPEC nations kept production steady, oversupplying the market and sending oil dropping to $21 a barrel.
Lynch sees a similar scenario playing out by the end of next year, and advises that now is the time to go short on oil.