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Strategies & Market Trends : Commodities - The Coming Bull Market -- Ignore unavailable to you. Want to Upgrade?

To: craig crawford who wrote (187)	6/11/2001 3:37:24 AM
From: craig crawford	Read Replies (1) \| Respond to of 1643

Are We Due For an Oil Change? Analyst says inventories have swelled and prices will fall to $18 a barrel. interactive.wsj.com (subscription req) The market increasingly seems to feel more comfortable of late about the sustainability of higher oil prices, but Fred, a veteran oil analyst at Bear Stearns, argues that inventory data over the past eight weeks support his prediction of far lower crude prices next year. There are a number of reasons why we think oil prices will decline from here. First, we think that Saudi Arabia changed its oil policy in 1997 from one that sought [price] stability at about $18 to one that actually seeks extreme volatility If you measure volatility as the percentage change from one average price to the next, year-to-year, then in the last 15 years average volatility has been 20%. In the last five years, it's been 33%, and in the last three years, it's been 40%. Oil prices are getting more and more volatile. Q: There is one other factor now that that is different from two years ago, and that's demand. The U.S. economy is certainly a lot slower than it was. A: We talk a lot about the supply side because it can overwhelm demand. For example, if our demand forecast is off 1%, that would be a very big error of 750,000 barrels per day, because the world consumes about 75 million b/d. At four million b/d, by comparison, OPEC's manipulation of the market tends to be more potent than demand. But it so happens that world economic activity tends to strengthen my argument that oil is more likely to come down. I think oil plays a large role in causing recessions. In 1973 you had the Arab oil embargo. Oil went up, 1974 recession. In 1979, the Iranian revolution, oil goes up, recession in 1980. In 1990, Kuwait is invaded, oil goes up, recession 1991. Oil goes to 37 in 2000, recession in 2001? Sure looks like it. In the years of recession oil prices always fall.