Here we go again:
CRUDE oil prices above $US120 a barrel are “abnormal” and could fall to about $US78 under the right circumstances, OPEC president Chakib Khelil said in Jakarta yesterday.
“If the dollar continues to strengthen and the political situation (regarding Iran) improves, then the long-term prices will be about $US78,” Mr Khelil said, adding the market was well supplied with oil.
One could argue that the qualifying ifs make this prediction meaningless. Who really thinks the US dollar will continue to strengthen, or that we will all hold hands with Iran? But putting that aside, just consider the silliness of his last assertion:
“There’s a balance in the market,” Mr Khelil said. “I would say stocks are at a good level and there hasn’t been any disruption in demand.”
Yes, there has been a “balance” in the market . . . at $130. Why should we expect it to return to $78? Because an OPEC official says so? One only need consider the performance of recent past comments to gage their credibility. For instance, less than a year ago we heard this:
The $80 record high reached by crude oil prices is not sustainable because it is not supported by market fundamentals, the Organisation of the Petroleum Exporting Countries (Opec) said.
Abdalla el-Badri, Opec secretary-general, linked the price jump on Thursday to US refining bottlenecks, the hurricane season in the Gulf of Mexico and attacks against several natural gas pipelines in Mexico.
“We don’t think this is a permanent $80 a barrel. The fundamentals do not support the price at this time,” Mr El-Badri said.
So one year ago an OPEC official said that $80 was unsustainably high, now $78 is considered to be an achievable “normal” price, if the all bad stuff works itself out.
It’s interesting that these insiders are continually missing their price targets on the downside. What will OPECs stated price floor be next year? $90? $100? Time will tell. But it will undoubtedly be higher than what it is saying today.