Monday, December 15, 2008

More Forecasts for Cheap Oil in 2009

“Heading into 2009, we believe many commodity prices are set to overshoot to the downside in response to the worst downturn in economic activity since the Great Depression,” said Deutsche Bank analyst Michael Lewis.
“2008 will go down as one of the most volatile and difficult years, ever” for oil, said Peter Beutel, analyst at energy consultancy Cameron Hanover.
“It was a year that started with runaway prices and all the makings of the worst inflation in nearly three decades. It is ending with imploding deflation and the worst recession in seven decades,” he added.
Merrill Lynch expects oil prices to average 50 dollars a barrel in 2009, as energy demand shrinks in the face of slow economic growth.
Deutsche Bank predicts average prices of 47.50 dollars in 2009, cutting its earlier forecast of 60 dollars.
Merrill Lynch commodity strategist Francisco Blanch said a rebound in crude prices was not on the horizon.
“With demand vanishing across all key oil consuming regions, a strong rebound in prices in the first half of 2009 is unlikely,” Blanch said.
Deutsche Bank's Lewis agreed, adding: “We expect energy and the industrial metals prices will remain the major casualties in this environment.”
I am not sure where to attribute the above quotes. They provide perspective on the dire nature of the economic malaise, but these investment banks don't have a particularly strong record of forecasting the price of crude oil, so I always take them with a grain of salt. Still, they provide perspective on the fundamentals of crude oil supply and demand.
As I have told myself many times:

"Predicting the future is for
prophets, not profits."
At current price levels, demand decay isn't the only factor affecting crude oil prices. Production levels are also falling rapidly even within the United States.