Oil's boom
3 months earlier, crude had rocketed to a record 147 dollars/barrel because investors were confident the world's thirst for oil would only continue to grow.Today, with the credit markets stuck in deep-freeze and economies around the globe tumbling into recession, world oil demand has flat-lined.
The price of oil has dropped by more than 50% since the summer.
Houston oil industry executives are warning of lower profits, oil field services and equipment are showing early signs of softening, and OPEC oil ministers are slashing production for fear of a price collapse.
"The boom isn't dead," says Kevin Book, an oil analyst with FBR Capital Markets. "But it might be less of a bang, and more of a whimper."
Economic activity is slowing. Motorists, with memories of 4 dolars/gallon gasoline still fresh, are parking their SUVs. And oil demand is growing at it is slowest pace in years.
In fact, some analysts believe oil demand can fall next year for the 1st time in a generation.
Institutional investors and other speculators, who had waded into oil commodities and helped drive up prices to unheard-of heights, have largely fled the scene.
And now oil analysts are left to ponder just how low oil prices could go — perhaps 50 dollar/barrel by the end of next year, thinks Deutsche Bank's Adam Sieminski.
Faced with such prospects, the Organization of the Petroleum Exporting Countries agreed Friday to cut its production quotas by 1.5 million barrels a day, but crude still dropped 3.39 dollar to close at 64.15 dollar/barrel on the New York Mercantile.
If the OPEC members' adherence to previous agreements is any guide, the announced production cut will likely be smaller, Sieminski tells.
But with today's gloomy economic climate, OPEC would have been better off doing nothing, argues Leo Drollas, chief economist for the Centre for Global Energy Studies, a London-based oil consulting firm founded by one-time Saudi Oil Minister Sheik Ahmed Zaki Yamani.
"Put the light out, hide behind the sofa and hope for the best," Drollas told, because doing otherwise can prolong an economic downturn that will affect OPEC as well.
"You are part of the world economy," he told. "You aren't on planet Zong, looking down at the earthlings having trouble."
The current economic tempest is already bad enough that the Paris-based International Energy Agency has chopped half a million barrels a day from it is demand orecast for the 2nd half of 2008.
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