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Monday, December 15, 2008

Fox Business -- Talkin' 'Bout Oil

I'm appearing on Fox Business TV at 1:00 to 1:06 today on the Stuart Varney Show. Stuart's a good guy, so probably no chairs will be flung (ha-ha). Anyway, I'm going on to talk about oil prices.

If you don't get Fox Business -- I don't get it on my darned cable -- here are the talking points I'm bringing for my interview ...

Goldman Sachs predicts oil prices will fall to $30 a barrel.

OPEC President Chakib Khelil said all the group’s members support an oil output cut at this week’s meeting, including the largest producer Saudi Arabia.

OPEC is about 75% compliant with the last round of production cuts (cutting production by 1.5 million barrels a day from Nov. 1) – that’s pretty good by their standards.

Russia, a non-OPEC producer, will likely cut production as well. OPEC is asking Russia to reduce oil output by 200,000 to 300,000 barrels a day

We are already seeing oil production fall with prices. Unconventional oil reserves account for 18% of all liquids used, according to the International Energy Agency. And that represents 15.6 million barrels per day.

Next we’ll see marginal production from major producers cut.

Result: World oil supply is likely to drop by three million to five million barrels a day in 2009, due to OPEC cuts and smaller companies slashing production, compared with a decline of just one million to two million barrels a day in global oil demand.

Bottom line: Unless prices go higher, marginal production will come offline. That, in turn, will push prices higher. Oil has technical and fundamental support at current levels. We may see Goldman’s price target of $30, but not for long, and there are already forces in play that could send oil higher from here.

What could stop oil prices going higher? A severe global recession. And do you really want to root for that?


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