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December 2008 Archives



December 16, 2008 2:59 PM

OPEC in a Fog

We call OPEC a cartel, but if it really had control over prices, how could it let them swing so wildly?

The answer is that even a cartel has to deal with market forces. With prices down about two-thirds from their July peak, OPEC has called an emergency meeting tomorrow to hash out a plan to stop the slide.

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December 29, 2008 3:24 PM

Forecasting (or Guessing) the Price of Oil

What will the price of oil be at the end of next year? Or next month?

It's hard to say and I generally try not to. That's why we're asking you, dear reader. But first, some background.

A comment on my last posting made a disparaging reference to a sentence in an article I wrote over the summer about oil prices. At the time, prices were just a bit off from record $147-a-barrel oil and I wrote that prices were unlikely to fall as low as they were for the previous generation.

And now...

There are good reasons why I try to avoid projecting oil prices. In the short to medium term, a geopolitical crisis, a bold OPEC production cut, a bigger than expected drop in U.S. consumption due to, say, a financial crisis (on top of price-induced conservation measures) and a decision by several big developing countries to lift gasoline price controls can all substantially change the price picture. Relatively modest changes in either supply or demand can produce big price changes; back in 1973-74, modest declines in supplies drove prices up sharply. On top of all that, huge flows of money in and out of commodities can magnify these moves.

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