OiL PRICES: Oil Market Will Return to Fundamentals

Most pundits believe that $100 (and higher) oil is here to stay, and often cite supply concerns, Asia’s growing demand, and The Peak Oil Theory, among other reasons. We believe oil will pull back significantly in 2008. The days of $10, $20, or even $40 oil may be over, but we believe we’ll see the $50’s again. The fundamentals just aren’t that bad, and the run-up to $100 has been fueled more by a weak dollar, fear premium, and speculation than increasing demand.

Don’t mistake this for the naïve belief that all is well in the land of fossil fuels, and that we are not running out of oil. We will run out, we do need to find alternative sources, and we do need to continue improving technology in order to recover oil from difficult places. $100, we believe, is not justified. Ultimately, the oil markets will again trade on fundamentals.

By Clyde Milton

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