“In the absence of a major financial meltdown, oil will end 2016 north of $60 a barrel.” So stated this column at the turn of the year – a forecasting flourish possibly fuelled by one Christmas brandy too many.
Back then, in early January, having plunged all the way from $115 in mid-2014, Brent crude was trading at $37 a barrel. In February, oil fell again, going below $30. At that point, my $60 prediction looked silly.
In the absence of a major financial meltdown, oil will end 2016 north of $60 a barrel,” this column stated at the turn of the year. It was a forecasting flourish possibly fuelled by one Christmas brandy too many. With just four months of 2016 to go, though, I’m sticking to my Yuletide view.
Attempting to predict the oil price is crazy. Yet no decent economist can afford not to. The world economy still revolves around oil – used in everything from transport and electricity generation to the production of plastics, synthetics and so much else. And for all the breathless talk about renewables, and the grim inevitability of growing nuclear dependence, we remain addicted to oil.
“In the absence of a major financial meltdown, oil will end 2016 north of $60 a barrel,” wrote this columnist in early January. I’m sticking to that view. Having sunk to a 13-year low in mid-February, crude prices have since risen by more than 80pc – and last week broke through $50 for the first time since last November.
This significant oil price rise is happening, though, despite and not because of the once all-powerful Opec exporters’ cartel. But that’s not stopping Opec from trying to reestablish itself as the supply-limiting force it once was.
Forecasting the oil price, as I’ve often said, is a mug’s game. But the cost of the black stuff is so important – central not just to transport and electricity generation, but also agriculture, the production of plastics and synthetics and so much else – that any self-respecting economist simply must take a view.
“In the absence of a major financial meltdown, oil will end 2016 north of $60 a barrel,” this column asserted at the turn of the year, possibly after one Christmas brandy too many. Despite yuletide excess, I’m sticking to that view.
Last week oil jumped above $44 – it’s highest level so far in 2016. Having sunk to a 12-year low in mid-February, crude prices have since risen 40pc. The Opec oil exporters’ cartel is now trying to forge an output-limiting agreement, ending a two-year supply glut and pushing prices further up. So, all eyes are on today’s Opec summit in Doha.
What are we to make of last week’s deal to freeze oil output between Saudi Arabia and Russia – the world’s two leading crude exporters? Is it significant and is the price of oil now likely to rise?
This agreement is remarkable in the sense that there typically isn’t much love lost between Riyadh and Moscow. While Saudi has traditionally been the beating heart of Opec, Russia has always sat staunchly outside the 56-year old oil exporters’ cartel, just like the Soviet Union before it. The fact that the Desert Kingdom has long been a US-ally (albeit to varying degrees) has also helped stoke Russo-Saudi tensions.
The oil price collapsed last Monday after an acrimonious meeting of the Opec exporters’ cartel. Having been above $105 a barrel as recently as June 2014, US crude fell to $37.65. That represents a 64pc drop in just 18 months – to the lowest level since the worst of the global financial crisis in February 2009.
Oil plunged again last Thursday, moving below $37 – amid further evidence that Opec’s 12 member states, from the mighty Saudi Arabia to tiny Ecuador, are cracking up. After staying well above $40 a barrel for months, crude has now crashed decisively through that psychological lower bound. Now it’s been breached, there’s widespread speculation crude could tumble much further – maybe even as low as $20.
Only a fool or a liar claims to know where the oil price is going. I like to think I’m neither – although some may disagree. While predicting the future path of crude is almost impossible, the oil price remains the most important economic variable on earth.
So, despite the pitfalls, any self-respecting economist needs to take a view. Mine is that oil is priced some way below its fundamental value, and has lately been artificially deflated by a soaring dollar and excessive fears the Chinese economy is about to implode, based on the dramatic volatility of its relatively small but highly visible stock market.
Attempting to forecast the oil price is a mug’s game. But that hasn’t stopped me in the past (ahem!) The reality is that crude is so important to modern life, and the path of the global economy, that for all the pitfalls of prediction, any serious economist needs to have a view on the future cost of the black stuff. Pivotal not just in terms of energy and transport, but also the manufacture of vital inputs from polymers to fertilizers, the dollar oil price is perhaps the world’s single most important economic variable.
My view is that the current price dip is temporary, partly illusory and that oil is now heavily over-sold, having fallen way below its fundamental value. As such, I’d venture that, in the absence of a 2008-style systemic meltdown on global markets, $100-a-barrel oil will return by the middle of 2015.
The UK remains locked in the grip of petrol panic. Just the prospect of a tanker drivers’ strike, with the Easter holiday season looming, and we lost our collective nerve. Snaking petrol station tail-backs became commonplace and jerry can sales soared. On Friday, a third of UK filling stations actually ran out of petrol, with demand up 170pc on the same day the week before.
Some say the Tories deliberately stoked the petrol panic, to get rows over cash-for-access Downing Street dinners and post-budget “granny-tax” squirming off the nation’s front-pages. Ministers will certainly have known that a potential fuel crisis piles serious pressure on Labour, given the party’s financial reliance on Unite, the union representing the 2,000 fuel tanker drivers threatening to strike. Fearing public opprobrium, perhaps, Unite late on Friday ruled out industrial action over the upcoming Easter weekend. Yet, still, the panic buying continued.