Oil Prices
Another down week for oil with the front month December WTI contract closing Friday at US$57.04 a barrel, a drop of US$4.00 a barrel from the previous week’s close.
No respite for the oil price as it fell below US$55.00 a barrel during the week. But just as prices overshot to the upside last year they appear to have over shot to the downside this year.
When sentiment changes, and the panic and distressed selling is all done, oil prices along with other commodity prices will rise again to more realistic levels.
We still firmly believe oil will be back at US$100.00 a barrel within six months. As we said last week lower prices have slowed demand destruction, OPEC looks serious about reducing output to support prices and may cut more and marginal production not currently economic is bound to be shut in.
The major fields are declining at a first clip of over 9% a year, faster we suspect than demand is falling. And we have made so few new discoveries of any size that we are not replacing depleting reserves. We just can’t see how the fundamentals justify an oil price of US$55.00 a barrel.
And we say again we just cannot see how the US dollar can remain strong in the face of the US budget and trade deficits and the increase in the money supply via the printing presses needed to stimulate the US economy. A weaker dollar will see oil prices rise.
As will the northern hemisphere winter just ahead.
Tapis Oil Price
Tapis, an Asian marker crude benchmark for Australasian producers, was weaker closing Friday at US$58.75 a barrel, down US$3.03 a barrel over the week.
For most Australian producers the Tapis price represented an oil price of A$89.56 a barrel at an exchange rate of US$0.656 cents to the Aussie dollar.