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Oil Set for Rebound as Record Drop Spurs OPEC Cuts

Grant Smith and Mark Shenk
Bloomberg [1]
Tuesday, Dec 30, 2008

Oil futures may rebound from their worst year to average $60 a barrel next year as OPEC makes record production cuts to counter the deepest economic slump since World War II.

The forecast, the median of 33 analysts compiled by Bloomberg, represents a 50 percent gain from yesterday’s $40.02 closing price. A 14 percent reduction in supply, equal to 4.2 million barrels a day, pledged by the Organization of Petroleum Exporting Countries will erode U.S. crude inventories that rose 10 percent this year as the slowing economy reduced world demand for the first time since 1983.

While oil tumbled from a record $147.27 in July consumers in the U.S., Japan and Germany faced their first simultaneous recessions in six decades. The plunge risks curtailing investment in new rigs, refineries and alternative energy sources, setting the stage for a supply crunch later on.


“Once we get through the crisis, we will find that support is higher than $40 a barrel,” said Sarah Emerson, managing director of Energy Security Analysis Inc. in Wakefield, Massachusetts. “The decline in demand has already occurred. A lot of analysts were late coming to realize that. By next summer this market should be turning around.”

Crude futures averaged $100 this year, the highest since oil began trading on the New York Mercantile Exchange in 1983. Oil plunged along with commodities from copper to corn in the second half as world economies slowed in the credit crunch caused by $1 trillion of losses and writedowns at the world’s biggest financial companies.

Full article here [1]