Earlier this year, many voices in the media were warning for the worst when it came to the price of oil as economic uncertainty loomed ahead. One analyst even predicted in May that oil would hit $300 a barrel.
However, now that financial turmoil has plagued the markets, the price of oil has fallen from its $147-a-barrel high in June 2008 to around $90 a barrel on Oct. 7. Around its peak, many were forecasting oil in excess of $200 by the end of 2008, but since that time the bull market in commodities has slowed or ceased, as Equidex President Phillip Gotthelf pointed out on Bloomberg TV on Oct. 7.
“I think that the commodities really outlived their, their useful rallies because they’ve exceeded the elasticity of the consumer,” Gotthelf said. “And commodities are consumables, they’re not investments. They’re speculative equals sometimes, but they’re certainly not investments.”
According to Gotthelf, those commodities include oil, which he said was poised to go to $40 a barrel or lower in the wake of the global economic turmoil.
“I’m somewhat amused. Goldman Sachs (NYSE:GS) was forecasting $200 a barrel for oil,” Gotthelf said. “I see that their forecasts are getting more and more conservative. I said $200 a barrel was ridiculous. Even $150 I thought was ridiculous. We were looking at $24 a barrel in 2004. Everybody is now making comparisons in the financial sector to the implosion of stocks in 2002, 2003 – the last stock recession. Why shouldn’t we see oil return to $40, maybe even below $40 a barrel?”
If Gotthelf’s prediction were to come true, the price of a barrel of oil would reach a low point not seen in almost four years. The last time oil was at $40 a barrel was late 2004. At that time, the media were concerned about paying $2 a gallon for gas.
Gotthelf based his prediction on the decrease in demand – a result of the economic slowdown and changes in worldwide energy supply.
“Certainly we could [see $40 per barrel] because think about the fact that we’ve had what people are now calling demand destruction – a new term,” Gotthelf said. “Basically demand is declining because of the extreme economic conditions that were facing and because SUVs are very expensive to fill up. We’re switching our way of doing business in energy and you’re going to see that reflected in the decline of world consumption.”