Oil Prices Predicted to Continue to Fall
Oil economist Phil Verleger has recently stated: “Recent actions by Saudi Arabia and other Middle Eastern countries suggest they will maintain their efforts to beat off attempts by Africans, Americans, and Canadians to capture their market. The only way they can do this is to let prices fall. Crude prices may have to drop below $50 per barrel for a sustained time to force other producers to shut in output. Prices might need to remain at or below such levels for months or even a year or two to convince investors to abandon projects in Canada.”
Phil Verleger is no stranger to correctly predicting trends in the oil industry. During the summer, he projected a large scale unwinding in the gasoline market due to a speculative bubble. Shortly afterward he stated that the International Monetary Fund was probably going to downgrade it projects for global economic activity in October and explained that the IMF move would in turn be followed by a lower oil demand forecast from the IEA (International Energy Agency). His prediction has become a reality very recently which contributed to the major drop in all global grades of crude oil.
In his analysis he has explained that Venezuela and Iraq are two countries that will not be able to withstand any long term drop of oil prices or they will inevitably be forced to cut production or shut down all together. Canada is also another country that is in a similar boat. Although Russia companies are not as vulnerable, they are still at risk. The Middle Eastern producers will have the major advantage with their financial reserves which will allow them to outlast competitors.