At what level should OPEC support oil prices?
*Barron's, by Masood Farivar, October 9, 2006
Forget About $50 Oil
“THERE ARE PLENTY OF REASONS TO EXPECT OIL PRICES to continue the slide that began in late summer.
U.S. petroleum inventories have swelled to historically high levels, worries that the nuclear standoff with Iran will disrupt Persian Gulf oil supplies have diminished, and slowing global economic growth is seen curbing demand for petroleum products. Some of the more bearish voices in the oil markets are starting to talk about oil falling to $50, or even below.
The big sticking point: the threat of a production cut by the Organization of Petroleum Exporting Countries, which controls about 40% of the global oil supply. That prospect, analysts say, should keep prices well above $50 for the foreseeable future.
“All of the things that were propping prices up are gone, and now just the prospect of a cut from OPEC would keep prices high,” says Mary Novak, managing director of energy services at Global Insight in Lexington, Mass.
Global Insight expects benchmark West Texas Intermediate prices to average $63 a barrel in the fourth quarter and $66 next year. Most analysts call for prices in the high $50s and low $60s into 2007.
As oil futures in New York continued their slide last week and dropped below $60 for the first time in eight months, reports circulated that worried OPEC members had begun mulling a production cut.”
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