Projo Cars Blog

Okay, I was wrong.

A few weeks ago - and that feels like a lifetime in these historic times - I wrote that I expected oil prices to stabilize around $100 a barrel.

Having covered "tha awl bidness," as they say in Texas, for some of the top industry newsletters in addition to having helped establish the energy desk at Reuters in New York back in the 1980s, I thought I knew what I was talking about.

Well, oil prices are now hovering below $90 a barrel. Indeed, they fell today to their lowest level this year - just shy of $89 - due to an increase in inventories and falling demand.

What happened?

You know what happened. Wall Street took a dive and took the whole world with it. Ain't no way you can predict a crisis on that kind of scale.

Fact is, I still think speculation accounted for about $30-to-$40 a barrel out of the record price of $147 this summer.

What's changed is that global demand, which had been the driving force behind the run-up in prices, especially new and growing demand from such developing industrial giants as China and India, is now seen as falling off as the global crisis slows economic growth.

The U.S. Energy Information Administration, for example, predicts that the global crisis will cut oil demand by about 140,000 barrels a day next year, with U.S. oil demand seen at 19.7 million barrels a day which would be the lowest level in eight years.

Goldman Sachs, for example, (Hey, didn't they get bought out or something?), is now predicting that oil prices will not recover until "global expectations bottom," which I guess is Wall Street gobbledygook for the world's economies and markets stabilizing and starting to recover.

Goldman Sachs, of course, is the outfit that in 2005 predicted that oil prices would climb above $100 a barrel and earlier this year predicted prices between $150 and $200 a barrel by the end of next year.

Reminds me of my days on the business desk at Reuters when we were expressively forbidden to report any economic or company prediction beyond six months on the grounds that it was basically meaningless.

Good training (reinforced with numerous metaphoric clumps to the head) that remains with me to this day.

- Peter C.T. Elsworth

 Tags  Commentary oil prices

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