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Forecast on oil price: Aiming for the sky

Forecast on oil price: Aiming for the sky
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First Published: Thu, May 08 2008. 10 33 PM IST
Updated: Thu, May 08 2008. 10 33 PM IST
Oil is going to $150 a barrel. No, make that $200. It’s time for wild and crazy forecasts in the commodity world. And why not? The oil price already bears no relation to the cost of production, while the supply is increasing a little too slowly to keep up with even modest demand growth, although that market shortage may have been abetted by speculative inventory-building.
As far as commodity prices go, it seems that the only limit on the upside is what customers can afford to pay. And for the moment, the money spigots haven’t closed on oil buyers. So Goldman Sachs, which was the first big investment bank to call for $100-oil, could be proven right again in its latest $200 forecast. Anyone for $1,000?
But Goldman’s forecast could also go the way of so many other bull market enthusiasms. The count of oil rigs, a harbinger of future production, is at an all-time record. Economic growth is slowing. And even if higher inflation is here to stay, easy money will not keep the price of oil massively above the cost of production forever.
Optimistic experts agree that the price will fall, but they keep increasing their post-bubble price forecasts. Goldman just pushed its 2012 price up from $60 to $75. That target may seem cautious now, but markets often turn sharply. Oil could fall much further, much faster.
If oil slips below, say, $40 in the next few years, the peak-oil predictors will yield headlines to a new crop of experts, who will provide models explaining why $25 oil is inevitable. Of course, fewer of those commodity experts will be employed at investment banks.
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First Published: Thu, May 08 2008. 10 33 PM IST