Each week I give a price projection for the average price of oil over the next 90 days. The downward move in oil has been nothing less than a fast crash, over the past 4 weeks. Indeed, even the weekly drops are stunning, in percentage terms. As my readers know this has caused many oil analysts to capitulate on their year end targets for 2008, and 2009. So the pressure has really been on, for me to drop my own forecast.
One issue is that my 90 day forecast now goes into late January. Alot will happen between now and then. An election. The telegraphing of new policies from an incoming administration. Also, economic summits are set to take place, and finally it seems likely that a resolution to current stock market turmoil is upon us.
Despite the fact that an oil spike back towards 90.00 is very possible, what’s not possible is that oil could average even the lower end of my previous weekly forecasts, at 90.00. Oil is much more likely to average 75.00 to 80.00 over the next 90 days. I see an immediate correction in oil upwards above 75.00 that could take place over any 2-3 day period that global equity markets recover. The situation in global markets is truly impossible to forecast and so too with oil. If major currencies can see the kinds of dislocations they saw last week, then front month oil can continue to move to extremes. With OECD stocks continuing to decline, and with OPEC exports having started to decline already in late August, there is also no reason why we could not hit 100.00 again in mid-January. We are already seeing decline in non-OPEC production, and this Winter is set up to be colder.
What’s most useful to consider is that the present price is an extreme, much like most asset prices around the world. If dislocation type moves continue this week across asset classes, and oil does the same, perhaps next Sunday night’s oil forecast from these pages should state that the most accurate forecast now is no forecast at all.
-Gregor
