NEW YORK (Dow Jones Newswires), October 9, 2008
Right on cue, OPEC's price hawks are calling for an emergency meeting as the price of the group's reference basket of crudes hits $80 a barrel for the first time in a year.
Deepening Crisis May Steel Saudis
In the weeks following OPEC's talks, the U.S. banking crisis deepened and morphed into a worldwide crisis that stirred major central banks to take the extraordinary step of coordinating a cut in their target interest rates in an attempt to ease strains on the global financial system.
Revisions Need Further Revisions
The global picture is just as gloomy. EIA revised worldwide oil demand in the current quarter down to growth of just 0.85%, from an expected rise a month ago of 1.3%. The rate of demand growth for all of 2008 was cut in half, to just 0.4%, while the 2009 forecast was slashed to 0.5% growth from 1.1% growth expected a month ago.
But no sooner had the impact of the deep cuts rippled through the market, then EIA said at a Washington, D.C., press conference that its downbeat forecast may still be too optimistic because assumptions about core economic indicators are outdated, given the escalation of the financial crisis.
EIA's Tuesday forecast was based on U.S. economic growth of 0.8% in 2009, a revision from 1.2% growth in its month-earlier projection.
But the International Monetary Fund said on Wednesday it slashed its own 2009 forecast for U.S. economic growth to just 0.1% from an earlier 0.8% projection in July.
If U.S. economic growth increases by just 0.1% in 2009, as the IMF projects, this would be the weakest full-year economic performance since 1991, when the U.S. showed negative growth of 0.2%.
IMF also cut its global economic growth outlook to 3% for 2009, from 3.9% earlier.
But some analysts believe that figure still is too high.
Adam Sieminski, chief energy economist at Deutsche Bank Global Markets in Washington, said his bank's projection calls for global economic growth of just 2.3% in 2009, saying even the lower number from the IMF "may be overly optimistic."
Deutsche Bank's projection of $85 U.S. crude oil for fourth quarter 2008 and first quarter 2009 holds up unless global economic growth deteriorates further, he said.
Nymex November-delivery crude oil futures traded to an intraday low of $86.05 a barrel Wednesday, the weakest since level since Dec. 6, 2007, before settling down $1.11 at $88.95 a barrel. The intraday low marks a 42% drop from the intraday record high of $147.27 a barrel hit four months ago on July 11.
Oil, Money Taps Open
Sieminski said that the Saudis, by keeping output high, are acting as oil's central bankers, while the Federal Reserve, the European Central Bank and others are keeping the money flow taps open as well.
"The Saudis are likely explaining to the oil price hawks that OPEC must help stem the economic crisis in order to keep oil demand from falling away rapidly as it did in the early 1980s," he said.
At $85, most oil exporters are balancing their budgets, Sieminski said, "but the difference between $105 and $85 on an annual basis is the equivalent of a $635 billion injection to oil consumers globally," based on demand of 87 million barrels a day.
That, he noted, is close to the value of $700 billion U.S. rescue package.
"In our view, the Saudis want to see financial markets stabilizing before they talk about stabilizing oil prices," he said.
Copyright (c) 2008 Dow Jones & Company, Inc.
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