Oil Prices Remain Unpredictable
Wednesday, December 03, 2008SUSIE GHARIB: Oil prices fell to their lowest level in almost four years today on concerns about a severe global economic slowdown. In New York trading, January crude futures slipped $0.17 to settle at $46.79 a barrel. That's in spite of a report showing an unexpected decline in U.S. oil supplies last week. As Erika Miller reports, experts are sharply divided on where prices head from here.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Oh, how mighty oil has fallen. A barrel of crude is now less than $47 at the New York Mercantile Exchange. That's roughly $100 cheaper than at its peak in July. Analyst Fadel Gheit says oil could head even lower.
FADEL GHEIT, SR. OIL ANALYST, OPPENHEIMER & CO.: There is definitely tremendous pressure on oil prices. If we don't have very cold winter, if we don't have supply disruption, meaningful one for longer period of time, I would not rule out below $40 oil.
MILLER: Gheit says supply demand fundamentals support prices at or near current levels. But he says where oil trades will depend on two things: First, whether the global recession is longer and deeper than expected and second, whether U.S. law makers crack down on oil speculation. Gheit is not worried OPEC will slash output in an effort to preserve profits.
GHEIT: OPEC cannot really take a risk of jacking up crude oil prices artificially, because that will derail global economic recovery. That's the last thing that OPEC would want.
MILLER: OPEC's president said today there's no floor under prices, reinforcing Gheit's view. But others like Jonathan Kleisner, at Rex Capital believe supply/demand fundamentals point to a sharply higher price for oil.
JONATHAN KLEISNER, PRINCIPAL, REX CAPITAL GROUP: We think it will be above $70 in the first quarter of next year. And we look at the end of the third quarter to be back above $100.
MILLER: Kleisner thinks OPEC and other oil producers will cut production as they've done twice this year. In addition, he predicts more investors will come back into the oil markets once volatility settles down. Part of oil's appeal, he says, is as a hedge against inflation which could result from the massive government bailouts worldwide. Most importantly, Kleisner believes consumer energy demand is poised for recovery.
KLEISNER: The real spark will be the emerging market growth levels. But, in point of fact, demand is already on the increase domestically in the United States, month over month and remember, cheap oil prices mean cheap gas prices. Cheap gas prices does stimulate demand.
MILLER: For now, that cheap gas is a small comfort to consumers during these tough economic times. The national average for regular unleaded is now $1.80 a gallon, less than half what it was in July. Erika Miller, NIGHTLY BUSINESS REPORT, New York
