Oil's Wild Ride Hits Bump

Source:

A price of almost $150 a barrel is unsustainable and the $200 target advanced by some folks will soon prove a mirage," wrote National Bank Financial economist Clément Gignac. "With demand from U.S. consumers downshifting and Asian countries cutting oil subsidies, we are sticking with our 12- to 18-month target of $75 to $80 a barrel."

It will likely be the middle of next week before gasoline retail prices begin reflecting an 11-per-cent drop in oil prices seen over the past three days, experts say.

The decline represents in dollars the biggest three-day fall since oil futures began trading 25 years ago.

But opinions are divided over whether the drop is merely temporary relief – reflecting falling North American demand for crude oil and concerns over inflation – or the beginning of a long-term slide that could see a barrel of crude costing less than $80 (U.S.) within a year.

"A price of almost $150 a barrel is unsustainable and the $200 target advanced by some folks will soon prove a mirage," wrote National Bank Financial economist Clément Gignac. "With demand from U.S. consumers downshifting and Asian countries cutting oil subsidies, we are sticking with our 12- to 18-month target of $75 to $80 a barrel."

But economists and analysts from some investment firms, including Morgan Stanley, Goldman Sachs, and CIBC World Markets, hold the view that the global supply-demand outlook will drive oil to $200 a barrel over the next few years. They argue chronic underinvestment in exploration can't be solved overnight, and it will take many years to bring on new supplies – and great expense.

Related Articles

Get Our Streetwise Reports Newsletter Free

A valid email address is required to subscribe