Tuesday, May 06, 2008

Lehman Bros. Report: Oil Bust in the Cards

Is $120 oil even real? Not if you ask the Saudis, or even Lehman Bros.
The investment bank’s oil expert said this week that the oil boom is due to bust. Economic growth across the globe will slow just as new refineries kick in, raising supply.
Recession or not, a U.S. slowdown will slacken demand sharply, right as new oil hits the market.
"Supply is outpacing demand growth,” said Michael Waldron, Lehman’s oil strategist.
"Inventories have been building since the beginning of the year. We have pretty significant projects starting soon in Saudi Arabia, and large off-shore fields in Nigeria,” he said.
Lehman is now predicting prices at $83 a barrel in 2009 and as low as $70 in 2010.
Although some years off, Brazil too has found as much as 8 billion barrels of light oil and gas offshore. The South American giant’s president says his country might well join OPEC when the Tupi field begins to pump, in 2011.
In addition, Middle Eastern sovereign wealth funds have pushed up the oil price by investing billions of their oil gains, ironically, in commodities index funds.