Oil to Plunge Below $25 Next Year, Merrill Lynch Says

[austin552]

http://www.foxnews.com/story/0,2933,462284,00.html

Crude oil prices may crash below $25 a barrel next year and gas prices could fall below $1 a gallon if the global recession spreads to China, an energy analyst and CEO said Thursday.

Demand for oil will continue to decline in 2009 as economic growth slows to its weakest level since 1982, Merrill Lynch Commodity Strategist Francisco Blanch concluded in a report.

"A temporary drop below $25 a barrel is possible if the global recession extends to China and significant non-OPEC cuts are required," Blanch was quoted by Bloomberg as saying. "In the short-run, global oil demand growth will likely take a further beating as banks continue to cut credit to consumers and corporations."

In October, when oil was trading for around $100 a barrel, Merrill predicted prices could drop to $50. Oil fell Friday to $43.64 a barrel in electronic trading.

The last time crude fell below $25 a barrel was November 2002.

Meanwhile, Gulf Oil CEO Joe Petrowski said on Wednesday that the price of oil could sink even lower — to $20 a barrel — and gasoline prices could drop as low as $1 a gallon by early next year.

Gulf Oil, based in Newton, Massachusetts, is an oil wholesaler.

"The damage to the economy by the financial turmoil is much bigger than the market initially thought," said Tetsu Emori, commodity markets fund manager at ASTMAZ Futures Co. in Tokyo. "The economic data now is much worse than what we expected a few months ago."

Oil prices have fallen about 70 percent since peaking at $147.27 in July.

Dismal economic data continued Thursday in the U.S., pointing toward a sharp contraction of gross domestic product in the fourth quarter and weakening demand for crude products, such as gasoline.

The government said the number of people continuing to claim unemployment benefits last week reached 4.09 million, the highest level since December 1982, while the proportion of workers receiving benefits matched a level reached 16 years ago, in September 1992.

Factory orders plunged a bigger-than-expected 5.1 percent in October caused by big cutbacks in demand for steel, autos, computers and heavy machinery. It was the largest decrease since an 8.5 percent fall in July 2000.

On Thursday, AT&T said it was slashing 12,000 jobs, or about 4 percent of its work force. Chemicals company DuPont said it will cut 2,500 jobs and media conglomerate Viacom Inc. said it will eliminate about 850 jobs.

Investors will be eyeing the Labor Department's November unemployment report on Friday, which economists expect will show that the jobless rate rose to 6.8 percent and that companies cut another 320,000 jobs.

"It could take a while before the economy and oil prices really hit bottom," Emori said. "Oil seems headed below $40."

In other Nymex trading, gasoline futures rose 0.44 cent to 97 cents. Heating oil fell 0.67 cent to $1.50 a gallon while natural gas for January delivery slid 7.9 cents to 5.94 per 1,000 cubic feet.

In London, January Brent crude rose 7 cents to $42.35 on the ICE Futures exchange.

[cgarr]

And just this summer they said we would never, ever see $60 a barrel oil again, ever! Said those days are over.

[sammyg2]

Gas will never hit $1 a gallon. The author of that article doesn't know anything about the subject. Nothing.
Taxes on a gallon are around 65 cents on average, in order for gas to hit $1 a gallon the crude oil would have to be free, the distributor would have to lose money on it, the refiner would have to lose money on it, and the retailer would have to break even. Ain't gonna happen.
The oil companies would be losing too much money and would simply would stop making gas. They are already heading that direction.

[legion]

I don't rule out an overreaction on the down side. We did see an overreaction on the up side, remember.

[Rot 911]

Right now gas is around $1.45 here so we aren't that far off.

[mikester]

Originally Posted by sammyg2

Gas will never hit $1 a gallon. The author of that article doesn't know anything about the subject. Nothing.
Taxes on a gallon are around 65 cents on average, in order for gas to hit $1 a gallon the crude oil would have to be free, the distributor would have to lose money on it, the refiner would have to lose money on it, and the retailer would have to break even. Ain't gonna happen.
The oil companies would be losing too much money and would simply would stop making gas. They are already heading that direction.

I remember $.99 gas in like 2002 (which corresponds to the low reported in the article but I honestly can't pin the date down) and I remember driving my tail off during that time. Have the taxes on gas been raised since that time?

[Embraer]

1998...my sophomore year of highschool, gas was .69 a gallon for 87 octane

[pwd72s]

Cindy does the shopping...tho gas is down, she claims food prices are still high....

[speeder]

As great as a break this cheap gas is, I don't think it's a good sign when oil crashes completely. Never thought I'd be saying that gas was too cheap, but when it goes from ~$5@ gallon to under $2 in 6 months, you know that the world is imploding.

[pwd72s]

Originally Posted by speeder

As great as a break this cheap gas is, I don't think it's a good sign when oil crashes completely. Never thought I'd be saying that gas was too cheap, but when it goes from ~$5@ gallon to under $2 in 6 months, you know that the world is imploding.

Stuff's happening, that's for sure...wish I had a crystal ball.

[RKC]

Who knows? Maybe it will go down that far. But if it does, that won't necessarily be a good thing.

The gas to fill Duesenbergs was cheap too when most everyone was selling apples on the corner...

[Taz's Master]

Speeder, I agree there is an element of economic implosion, however when gas was $4+ a gallon, OPEC kept saying that oil prices were not the result of supply/demand issues and would not increase production. Seems to me they were right. It also seems to me that large sectors of the economy operate outside the framework of reality.

[dtw]

Originally Posted by pwd72s

Cindy does the shopping...tho gas is down, she claims food prices are still high....

The meteoric rise in food prices can be traced to the increase in petroleum prices, as well as the transfer of corn from food input to fuel source. Without going political, most are waking up to the fact that ethanol was nothing more than smoke and mirrors.

As the ethanol crazy dies down and the decline in fuel prices ripples through the 'food chain', I expect a downturn in food prices, trailing behind the overall drop in consumer prices already happening.

What concerns me more than all this is volatility - we're already getting desensitized to massive swings in commodity pricing and stock market positions. The 'real' economy won't, though - look at the news coming out this week. Bad juju.

[Rot 911]

Originally Posted by dtw

The meteoric rise in food prices can be traced to the increase in petroleum prices, as well as the transfer of corn from food input to fuel source.

The corn market imploded a few months ago.

[Rick Lee]

I have noticed a drop in food prices, but maybe they're loss-leader sales. For a long time aspargaus here was $3.99 lb., no matter where you went. Sometimes Wal-Mart had it for a dollar less. Now I see it regularly for $1.50-1.99 lb. I noticed yesterday that even Costco has cut $1 off the price of a 1.75 lt. bottle of Marker's Mark. The thick cut bacon I usually get is about $1 lb. less than usual. I buy fish a few times a week, but I suspect I'm led to whatever is on sale on that day. I really think food prices are dropping, maybe not as fast as gas.

[dtw]

Originally Posted by Kurt V

The corn market imploded a few months ago.

Yep - but we won't see the full effects on the shelves immediately.

[126coupe]

Originally Posted by Rick Lee

I have noticed a drop in food prices, but maybe they're loss-leader sales. For a long time aspargaus here was $3.99 lb., no matter where you went. Sometimes Wal-Mart had it for a dollar less. Now I see it regularly for $1.50-1.99 lb. I noticed yesterday that even Costco has cut $1 off the price of a 1.75 lt. bottle of Marker's Mark. The thick cut bacon I usually get is about $1 lb. less than usual. I buy fish a few times a week, but I suspect I'm led to whatever is on sale on that day. I really think food prices are dropping, maybe not as fast as gas.

I used to pay over $24.00 for a half gallon of Cuervo Gold at Costco.
Yesterday $19.00, supply and demand? Shipping costs? I dont give a crap, I'll make myself a margarita..........thank-you

[tabs]

Food prices are DOWN...went to Kroger and everything is ON SALE....

Gas prices can very easily hit $1.00 a gallon...that is also the prediction of a guy who owns 1800 gas stations in the USA.

[rammstein]

Asparagus makes my pee smell bad.

[Rick Lee]

Originally Posted by rammstein

Asparagus makes my pee smell bad.

Ditto. Love it!