Will the sickly US consumer drag the global economy into a massive slowdown that puts Chinese factories out of business and leaves the Saudi sheikhs floating face-down in a lake of unsold crude? The futures market tells a different story. It is not the crude price over the next three months or even a year that matters, argues Jeff Currie, of Goldman Sachs. If you want to understand where oil might be going, look at the long end of the crude futures market.
You can fix your cost of oil as far out as 2015, and the interesting thing about those distant prices is that they have been rising faster than the prompt prices of Nymex crude.
Oil for delivery in April was priced at about $107 yesterday, the price rising a couple of dollars as traders quickly forgot about Bear Stearns. December crude was cheaper, priced $102 to reflect the nervousness about Americans' continuing addiction to motoring when the bank is seizing the keys to their homes.
But look further out to December 2010, 2011 and 2012 and the crude price is virtually unchanged at $100 a barrel. The market seems to be saying there is a strong likelihood that demand for crude will remain strong and that the world's ability to supply it will remain restricted for years to come.
Look at what is happening in the world at large and you see ample evidence that the futures market is right. If rich-country appetites dwindle over the next 18 months, Opec will react. They need a crude price of more than $60 a barrel to pay their bills and their recent behaviour suggests that they like $100 oil. They can easily cut output - the Saudis will take the hit - if necessary. Meanwhile, there is little evidence that the oil majors will produce more oil. They are not finding much and they are unwelcome where it is easily found. What they have, they struggle to produce fast enough.
The evidence suggests that the price of energy will dip and then continue its upward climb.
Wednesday, March 19, 2008
I have posted several times on the future of oil prices. One notion is that the US recession might put a dent in them and that longer-term the price of oil will ease. This article in The Times suggests that is not true. A US recession might cause a temporary brief fall but - through to 2015 - you can purchase oil 7 years in advance - the futures markets suggest that oil prices will remain high at something in excess of $100US per barrell.