Stargazing on the wild side

Denmark-based Saxo Bank’s tradition of annual “Outrageous Predictions” has had a high rate of bull’s-eyes in the past. The bank’s analysts said in 2006 they’re oil bulls “given the raft of alarming geopolitical scenarios with alarming implications for global supply”. Crude this year tested an all-time high of more than $99 per barrel and looks set to cross the $100 mark.

Not satisfied with its prediction coming true, Saxo now believes crude will test the $175 mark.
Much of the conventional wisdom on oil has been proven wrong over the past few years, as previously unimaginable new highs in the price of oil have only been a reflection of the strength of global growth, rather than an obstruction in its path. With the weak US dollar and shrinking profit margins for refiners, the end consumer in many places worldwide hasn’t noticed a difference between oil prices at $99 compared to oil prices at $75. Even if global growth slows in 2008, it will continue to move ahead in the emerging markets of the world where marginal energy demand is growing the most. As “peak oil” becomes an accepted principle and supply and demand do a nervous dance, the price risk in energy remains firmly to the upside.

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