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Oil Pricing: Upside Risks and Downside Drivers

by: FP Trading Desk April 23, 2008 | about stocks: IEO / USO    

FP Trading Desk

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Baffled by the soaring price of oil, which continues to set new all-time highs? You’re not the only one.

UBS energy economist Jan Stuart says the latest global oil supply, demand and inventory numbers look ambiguous and make it difficult to explain today’s high prices. While maintaining that fundamentals continue to be the primary driver, he sees no uniformly bullish message in first-quarter data:

  • Oil demand grew, despite a large decline in the U.S.
  • Supplies grew, but only from OPEC.
  • Inventories fell by less than normal, which helped to build up a small, but shrinking surplus.

    • Mr. Stuart told clients:

    Instead, the fundamental drivers of the oil price rally remained very narrowly focused.

    His base case for lower oil, which calls for prices to fall to the mid-$80 range through the rest of 2008, admittedly looks much shakier. This forecast hinges on factors like lower demand for winter fuel and negative demand growth as a result of the U.S. recession.

    Mr. Stuart said:

    But time is running out for this price collapse to arrive.

    Not only are the upside risks for oil prices growing, there are more of them too. Meanwhile, the downside drivers like lower U.S. demand, appear to be easily managed by producers and refiners, the economist noted. So if prices have not come down by the middle of May, he admits that the $87 forecast for Brent crude UBS has for 2008 will be far too low.

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    This article has 4 comments:

    •  
      Apr 23 05:42 AM
      Yes. Another economist tries to forecast oil price.
      Reply
    •  
      Apr 23 07:56 AM
      The price is up until it starts to go down!
      Reply
    •  
      Apr 23 11:20 AM
      banks and economists have had oil wrong wron wrong since 1999. Why would anyone ever listen?
      Reply
    •  
      Apr 23 01:03 PM
      "The price is up until it starts to go down!" Hey with insight like that you could get a job as a TV pundit because that is essentially what their insight comes down to. What oil is going to do in the next 6 months is anyones guess but what it's going to do in the next 6 years is as obvious as that Escalade I just saw roaring by.
      Reply
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