The global economic slowdown has cut the legs from under crude oil prices, which have fallen to $88 per barrel in early October from a high of $147.27 on July 11.
“If we are still in this panicked fearful uncertain mode, demand will be restricted,” says Thomas Hartmann, analyst for Altavest Worldwide Trading; and even at these levels, consumers are likely to cut back. “Prices are going to fall until oil gets cheap enough to encourage demand,” he says. Pointing to a wide consolidation range created in 2006 and 2007, and noting a lack of support below $85, he says oil is heading for $70 per barrel. “When the market cannot rally off bullish news, we are in a bear market,” he says, looking back on recent hurricanes and gas shortages.
“There will be some ongoing pressure on OPEC to cut production in order to rebalance the market and try to keep a floor under price,” says Timothy P. Evans, VP and energy analyst for Citi Futures Perspective. But their influence could be waning considering that BP’s Thunder Horse platform is expected to add 250,000 barrels per day to production in 2009 and Exxon Mobil has 20 new projects with a projected 400,000 barrels per day increased capacity. “We are down a long way from the high, but the average price in 2007 was about $72,” which is his target for the month.