Transcripts

Will Oil Prices Remain Unpredictable in 2007

JEFF YASTINE: And oil prices headed higher on the New York Mercantile Exchange today. Light sweet crude for February delivery rose $0.19 to $60.53 a barrel, as new figures showed U.S. crude stockpiles fell sharply last week. The Energy Information Administration says commercial crude oil inventories dropped by a whopping 8.1 million barrels in the week ending last Friday. This marks the fifth week in a row that crude inventories have shrunk. But analysts admit things were made worse by weather-related delays in offloading imported oil at ports along the Gulf coast. Experts say there should be a big reversal for crude in next week's numbers, since those delays are now clearing up.

Meanwhile, a bigger question for the energy markets tonight does not involve next week; it involves next year. Experts are split over just where oil prices will be heading in 2007. As Erika Miller reports, there are a lot of factors that could figure into the equation.

ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: For many motorists, the pain of $3 a gallon gasoline has not been forgotten. Now some experts are warning of an even higher tab next year, on the back of record crude prices. Goldman Sachs and others predict crude will average at least $72 a barrel in 2007. The reason: strong global demand for oil, particularly from China. The bulls also think OPEC will be successful at cutting output to prop up prices. The cartel plans to take 500,000 barrels a day off the market starting in February and there's the possibility of more cuts beyond that. But other industry experts, like oil trader Bill Wallace of Man financial, think crude prices will fall next year.

WILLIAM WALLACE, ENERGY TRADER, MAN FINANCIAL: I see us closer to the high 50's, low 60's, than I would back up to those highs in the high 70's.

MILLER: Analyst Mike Rothman of ISI agrees. He predicts the price of retail gasoline could average below $2 a gallon nationwide next year. Unless there's a major supply shock, he expects more crude will be on the market.

MIKE ROTHMAN, HEAD OF INTEGRATED OIL RESEARCH, ISI: We are going to see next year get back to something more normal, where spare capacity problems should dissipate, where growth in both OPEC and non-OPEC supply capacity will create a larger cushion and help these concerns about availability dissipate.

MILLER: Rothman isn't worried about OPEC's production cuts. The cartel's member countries notoriously cheat, so it's not clear how much oil will actually come off the market. But nearly everyone agrees there are a few wildcards which make predicting the price of oil difficult.

ROTHMAN: If you look at '07, the big concern, number-one concern certainly we have is Iraq. Iraq is exporting about 1.6 million barrels a day. If that number goes to zero, you're back in the same foot race of having adequate spare capacity.

MILLER: To a lesser degree, analysts are also worried about potential supply disruptions from Nigeria and Venezuela. Another wildcard is weather. Will it be brutally cold in the northern hemisphere this winter, sapping energy supplies? And come hurricane season, will there be another devastating storm like Katrina which damages Gulf coast oil facilities. The price of oil could be a significant factor shaping the economy in 2007. Lower energy prices typically stimulate economic growth, while a return to record highs likely would revive fears of inflation, perhaps even recession. Erika Miller, NIGHTLY BUSINESS REPORT, New York.