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A Matter Of Perspective
Written by Matt Hougan   
Wednesday, 31 December 2008 01:00

[Editor's Note: Brad Zigler is off this week. In his stead, we bring you a variety of voices covering the commodities space.] Let's play a little parlor game. What is the likelihood that oil will average $60/barrel next year?

Pretty likely, right? In fact, that's the average forecast of 33 energy analysts surveyed recently by Bloomberg News. It sounds quite reasonable, given that oil was trading for $146/barrel just a few months ago.

OK, now here comes the fun part: What is the likelihood that oil prices will rise 53% next year from current levels?

Impossible, right? After all, we're facing global economic recession. Consumer confidence is the worst it's been in history, everybody is scaling back and OPEC can't cut supplies enough to keep pace. Heck, things are so bad they're using supertankers as floating storage tanks! There's no way oil's jumping 53% next year!

Except, of course, the two figures are identical. $60/barrel is a 53% increase from current levels.

So why do people think $60/barrel is so achievable? It must stem from the speculative pop that pushed oil prices above $140/barrel just a few months ago. $60/barrel oil seems downright cheap against that $146/barrel peak.

But put into more-realistic percentage terms, $60/barrel is a very optimistic scenario. Oil prices have only averaged above $60/barrel in seven of the past 60 years. Two of those seven years were in 2006 and 2007, but before that, oil hadn't averaged $60/barrel since 1983.

That's not to say that $60/barrel is out of the question. The markets have been so volatile that anything is possible.

But it's not a shoe-in. And don't let people hoodwink you with numbers into believing that it's so.

 

 

More on this topic (What's this?)
The Recent Oil Price Rise Will Slow or Stop
When Will the Oil Price Pop?
How to Keep your Gas Prices Low
Read more on Oil Prices at Wikinvest
 
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