What's Next For Crude?

Now that I think we can safely say that oil has peaked (at least for some considerable time) around $147/barrel, where do we go from here?

Suddenly a plethora of analysts are out citing $80/barrel or less. One I read this morning predicting $67/barrel.

It is interesting to note that the current demise of crude comes hot on the heels of Hurricane Gustav and Ike which were supposed to have played havoc with US supplies.

Or did they?

One analyst at Societe Generale says that the US DOE has deliberately been misleading over the amount of US capacity closed by the recent storms.

The DOE has repeatedly said some 3.6 million barrels a day of refining capacity is off-line as a result of the storms, equal to more than 20% of US capacity.

But according to this guy in the run-up to Gustav the US was running at 2.4m barrels/day under capacity anyway. In effect of the 3.6m barrels of "shut-down" total US capacity two thirds of it wasn't even being used!

So crude has fallen around $55/barrel despite Russia invading Georgia, a major Turkish pipeline being closed for nearly a month, two hurricanes disrupting US supplies and OPEC cutting production.

Imagine what effect those things would have had on the market back in June!

Goldman Sachs would certainly have had their dream of $150/barrel followed by $200/barrel come true.

Well let them use some of the billions they made by hyping the market up to the nth degree to bailout AIG I say.

OPEC's recent "cut" of 520,000 barrels/day wasn't really a cut at all when you consider that they were pumping at 790,000 bpd over quota anyway.

Demand has been reduced already, and it doesn't seem like getting cranked back up again anytime soon. It is interesting to note that petrol at the pumps here isn't any cheaper now at $92/barrel than it was at $115 a few weeks ago, but that's another story.

Certainly we aren't all suddenly going to start consuming more are we? We haven't seen any of the benefit of the most recent drop.

Diesel, which is what I use, peaked at around 133/litre locally to me. Crude has fallen from $147 to $92 since, thats 37%. A fall in the price of diesel at the pumps of the same magnitude would make it 84p a litre now not the 122p that it is.

The next thing to note will be exactly how low the price must go for the normally super-chilled Saudis to start to feel the pinch. Until that happens and we get a really serious drop in supply it looks like the only way is lower for crude, especially given the current global fallout.