Oil to drop as OPEC turns up the taps

Crude oil prices at US$100 per barrel are at odds with recent weakness in the U.S. economy, rises in U.S. petroleum and gasoline stocks, and expectations for higher OPEC oil supply in 2008. The oil market appears to be trading more off hope than fundamentals, which are more in line with US$70 per barrel oil over the next year.

The U.S. economy is limping along at best, after being knee-capped by a severe contraction in the housing market, and this is translating to lower demand for oil in 2008.


The International Energy Agency (IEA) has belatedly cut predictions for global energy demand in its most recent monthly Oil Market Report. Its forecasts for oil are, unfortunately, only ever as good as IMF economic forecasts for economic growth.

The IEA has cut its estimate for global oil demand for 2008 by 600,000 barrels (6.8%) since the credit crisis began last summer. While it was apparent to some that the economies of the developed world would slow for two reasons — a retreating U.S. consumer and poorly functioning global credit markets — the IMF only recently revised down forecasts for global growth when it presented the World Economic Outlook Update in late January.

Financial Post