Heard this week, an interview with a resources analyst who claimed that crude oil prices could fall to $40 per barrel, from the current mark of $70.
China's thirst for energy and resources is often blamed for the soaring oil cost. Add to that instability in the Middle East and disruptions like Hurricane Katrina, and many fear the oil price can only continue to climb.But resources analyst Carlo Caiani is tipping that by the end of the year, the price of crude will be significantly lower.
CARLO CAIANI: We believe that it will go down to about $40 to $50. We believe the refinery capacity will have come in. We think that as long as problems with Iran don't escalate, as long as there's no huge terrorist attacks, and if you take the world economy slowing slightly, then the price will come down quite quickly, in the same way it's gone up quite quickly in the last 18 months, of course.
NEAL WOOLRICH: Carlo Caiani's view is supported by the chief executive of BP, Lord Browne. He told a German newspaper this week that in the medium term, prices will average around $US 40 a barrel, and he says in the long-run, $25 a barrel is possible.
Carlo Caiani estimates that speculators and hedge funds are adding up to $15 a barrel to crude oil prices. He says there's no shortage of oil reserves, the problem is a lack of refining facilities.
To me this argument is counter intuitive. If the bottleneck is refining, then crude oil prices would be low, as the crude producers would be competing with each other to sell to the refiners.
Given that crude prices are high, and accepting that there's plenty of the stuff in the ground, high crude prices would indicate the bottleneck is the limited capacity of the well heads and shipping infrastructure.
Just a thought. I'm certainly not an expert on the economics of the oil market.
