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Oil to Reach $120 by 2012?



July 29, 2011 – Comments (0) | RELATED TICKERS: USO

Peak oil has been the talk of the energy industry during 2011. But what should we expect from 2012? There are high expectations all around, and I have herd analysts predict $120 oil numerous times. Is it really possible? Paul Ausick has his own predictions. Take a look. 


 "The options market has priced more contracts for December delivery of WTI at $120/barrel than at any other price point, according to Bloomberg.  The next highest number of open interest is at $125/barrel. The two together represent an increase of nearly 30% in open interest over the last month.

Expert analysts typically include demand forecasts as well as other considerations like political stability when they make their predictions. There is little disagreement that supply will be very tight for the rest of this year, especially because Libyan production is essentially completely halted. With 1.6 million barrels/day of Libyan crude unavailable, the issue then is whether or not there is enough spare capacity in the rest of the world to make up the difference.

The answer to that has been pretty well established at “No”. The Saudis, who would like to see prices no higher than $90 or so, could not (or, perhaps, would not) ramp production enough to replace the lost Libyan barrels. The International Energy Agency was forced to withdraw 60 million barrels from strategic reserves in an effort to try to balance the market."

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