http://www.forbes.com/2009/05/27/oil-opec-energy-markets-commodities-crude.htmlCommodities
Overvalued Oil
Lionel Laurent, 05.27.09, 10:14 AM EDT
We are swimming in black gold, despite the recent rise in prices. Expect a correction soon.
The equity markets effectively spotted an end to the recession at the end of the first quarter, and now the commodity markets are responding in kind. Oil prices are comfortably above $60 per barrel, almost double what they were in January, and Saudi Arabian oil minister Ali al-Naimi is now talking about a price of $75 per barrel in the third or fourth quarter of this year.
But much like in the stock market, oil traders seem to be grasping for potential recovery in the future rather than looking at the reality on the ground. IHS Global Insight analyst Simon Wardell said on Wednesday that oil was currently overvalued, with no demand growth in sight. He noted that inventories tracked by the Organization for Economic Cooperation and Development were at an 11-year high of 2.7 billion barrels.
"The inventories are getting very, very high," said Wardell. "We're producing too much oil, and we're running out of places to put it."
The United States Energy Information Administration said as much earlier this month, when it said that expectations of a price rise in the coming year would "need to be tempered with the current market reality of this supply overhang." The government department slashed its projections for 2009 world oil consumption to 1.8 million barrels per day, from 2.2 million. Once again the speculators are trying to jack up the price when the markets, supply and demand, do not back up the rise in prices. The Saudis want the price up to at least $75, and speculators would love to see that so they can sell all the oil they have stored up that they bought at far lower prices.