I wanted to catch up on oil price trends this morning (very quickly). The above graph shows both WTI and Brent prices. As I've articulated elsewhere, I believe Brent is the line to focus on as reflecting global trends while WTI is currently influenced materially by regional factors in the US midwest.
I continue to be bearish on oil prices - Europe is getting worse rapidly and now appears to be entering outright recession. It appears likely that there will be some measure of financial contagion to the US (though it's not visible in US economic numbers yet). Under these circumstances I cannot but believe that oil prices will fall at least somewhat further.
Note that this is a minority opinion. Reuters reports:
Many analysts see the chance of modest falls in oil prices if economic activity in Europe is hit hard by the euro zone debt crisis, but even the lowest forecasts are relatively high.My guess is that prices will on the whole fall until the situation in Europe has clearly bottomed out (whatever that ends up looking like). The fact that most analysts don't agree just suggests to me that the situation there is not fully priced in yet. This is not to say that there won't be rallies on the way down (eg every time European leaders come up with another half-baked attempt at a solution, markets will rally as many people want to believe that it will all be ok).
In the most recent Reuters oil price poll, only two of 35 analysts predicted Brent would slip below $90 per barrel next year and the average forecast was that prices would be close to where they are now, around $106 per barrel.
Goldman Sachs, the most accurate oil price forecaster over the last year, now sees Brent at $125 per barrel in 12 months.
It's also true that the Saudi's are now making noises about stopping the current expansion plans again (after delaying them in response to the 2008 crisis). The suggests Saudi production may fall further as they seek to limit the downside to prices. Still, I believe Europe is now off the edge of the cliff (though just starting to look down) and I'm expecting the situation to turn into outright panic at some point and for that to get ahead of the Saudi response at least for a while.