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Oil May Fall Below $25 a Barrel Next Year, Merrill Lynch Says

2008-12-04 13:31:24.231 GMT

By Grant Smith

    Dec. 4 (Bloomberg) -- Crude oil may dip below $25 a barrel next year if the recession that's slashing fuel demand around the world spreads to China, Merrill Lynch & Co. said.

    Global oil demand will contract in 2009 as economic growth slows to its weakest since 1982, Merrill Lynch Commodity Strategist Francisco Blanch said in a report today. In October, when oil was around $100 a barrel, Merrill predicted that prices could drop to $50. Oil traded at $45.30 in New York today, the lowest since February 2005.

    “A temporary drop below $25 a barrel is possible if the global recession extends to China and significant non-OPEC cuts are required,” Blanch said. “With demand vanishing across all key oil consuming regions, benchmark crude oil prices continue to plummet.”

    Merrill reiterated its forecast from Nov. 26 that crude futures traded in New York will average $50 a barrel next year.

Prices “could find a trough” at the end of the first quarter and undergo a “modest recovery” in the second half as economic activity strengthens, today's report said.

    “We expect strong co-operation to emerge” among the Organization of Petroleum Exporting Countries as prices slide below $50 a barrel, Blanch said.

    OPEC, producer of more than 40 percent of the world's crude, was still pumping about 1 million barrels a day more than its official target of 27.3 million barrels a day last month, according to a Bloomberg survey.

    Producers in Canada may shutter nearly 800,000 barrels a day if prices decline below $35 a barrel, Blanch added.

Oil is currently trading at $45.78.

;D ;D ;D ;D ;D ;D

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I LOVE IT!!!!

My 250 HP Merc has quite an appetite. This season my fishing was altered a bit because of $4.30 per gallon prices. I didn't fish many of my big smallie haunts because of it. Next season will hopefully be alot different.

Let's keep our fingers crossed.

Falcon

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This is great. Now all the little dictators around the world will have to come calling with their hats in thier hands to keep thier people from kicking them out of power. Hopefully they will not have the money to cause a problem, and when the people get through with them maybe they will never be seen or heard from again.

They have all hitched thier governments to the price of high oil. Now maybe thier people will realize that they are what they are. Little wanta-bees with a lot of low price oil that cannot sustain their programs.  Wonder what Hugo thinks of the price and how will the russians respond.

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Couldn't happen to a better industry! When we were all paying $4 a gallon they had "there's nothing we can do about it" attitude. I hope OPEC crumbles and the Arab oil lords all go under

Allen

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Great news, however the down side is the reason the price keeps going down is the global economy slowly sinking. Although the feel good response is "buy american" or "buy local" the US economy will be very difficult to grow with the global economy as it is. We are no longer in a world were a country can prosper on their own. Will be interesting to see OPEC's response, and what happens when the global economy turns around.

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RW,  if they cut production enough where gas gets back up to $3 a gallon and we are still in a recession do you think it would make us get closer to a depression.  It seems the price of oil and economic growth go hand in hand.

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Most of the OPEC members have a significant interest in the health of the world economy. This does not come from kindness, but the reality of intertwined business interests. I do not think $3 gasoline would be in the best interest of the cartel, they need oil revenues and higher prices drive down demand.

That said, I do expect OPEC to lower production quotas targeting a trading range of $60-$80 and vigorously defending a $40 floor. Until the world economy improves dramatically, we should enjoy lower prices. This however has nothing to do with our need for an aggressive energy policy which increases domestic production and reduces our dependence on foreign oil. Energy independence is a matter of national security and the key to long-term economic prosperity.

8-)

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This however has nothing to do with our need for an aggressive energy policy which increases domestic production and reduces our dependence on foreign oil. Energy independence is a matter of national security and the key to long-term economic prosperity.

I completely agree with that.  In a time like this I belive it is the best time to start.  IMO just like the depression.  The government just step in and start doing big projects and loans for Nuclear and other powers.  That will provide jobs and a jumpstart for the economy.

JMHO.

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RW = Mr. Oil Updater!

HOORA!!! cheep gas!

Today we spent 40$ to fill up the truck, about 2 months ago it would have been 100$  :o

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"Alternative" energy is a definite key to keeping energy cost down when we get to a growing economy again. The big question is, while again its the "feel good" answer it will take americans making an adjustment in how things are done. How much of a fight will it be to get everyone to accept the change? People by nature to not grasp change easily, and without a mass majority of citizens accepting things it will be very difficult to make the fundamental changes necessary.

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if they cut production enough where gas gets back up to $3 a gallon and we are still in a recession do you think it would make us get closer to a depression.

If gas prices rise again then the stimulus package that will be enacted after Obama is sworn in will just be that much larger.  The rapid decrease in gas prices is a stimulus and if that stimulus is removed another one will take its place.

I also doubt that OPEC will move to get gas up to $3 a gallon again.  They're going to make some moves to cut production but they aren't going to want to get oil up too high.  They have to be aware of global slowdowns and be very wary of pushing downwards on the global economy.  As the global economy goes so goes their revenue stream.

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;D ;D ;D ;D $43.44 ;D ;D ;D ;D

Retail gasoline should soon fall below $1 a gallon!

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OPEC will make large production cuts later on this month when they meet again. They will also prepare to have emergency meetings to make further production cuts to stop the slide in prices if their cut this month does not help. I think OPEC got used to high prices and they are going to do what ever it take to keep oil from dropping below $40.

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Oddly enough, in my neck of the woods, gas has jumped $0.22 this past week. I know prices are still droping, so I couldn't quite figure that one out. Regular Unleaded is going for $1.69. Did I miss something? :-?

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;D ;D ;D ;D  $43.44   ;D ;D ;D ;D

Retail gasoline should soon fall below $1 a gallon!

Over here in Taxsylvania, prices are still holding at $1.82.

Pirates!  

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Retail gasoline should soon fall below $1 a gallon!

My kids are going to start drinking unleaded instead of milk.  We go through 3-4 gallons of milk a week and it's expensive.  If I can get them on gasoline, well, I'll save a buck or two.

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OPEC will make large production cuts later on this month when they meet again. They will also prepare to have emergency meetings to make further production cuts...

I don't understand how they can keep doing that without cutting their workforce.  Their economies are built on oil.  Seems to me that their  unemployment rates will have to soar.

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"Alternative" energy is a definite key to keeping energy cost down when we get to a growing economy again. The big question is, while again its the "feel good" answer it will take americans making an adjustment in how things are done. How much of a fight will it be to get everyone to accept the change? People by nature to not grasp change easily, and without a mass majority of citizens accepting things it will be very difficult to make the fundamental changes necessary.

The first warning was in 1973. There was a second in the 2nd gas crisis in 1979-1980.

The department of Energy was created during the Carter administration to work on finding alternative energy sources. It failed, obviously.

We've had 35 years to devise an energy plan. We've spent billions over in the middle east protecting their oil. We've lost plenty of American lives doing the same. Do you really think there would have been a Gulf War 1 or 2 if we already had an energy policy and were self reliant?

Nope.

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Personally, I am very comfortable with the price of oil holding in the $60 neighborhood.  It allows the oil companies to drill for oil and still make a profit from the production of any oil discovered.  The unfortunate thing is that, at $60, North America's vast resources of oil shale reserves will probably now remain un-developed.  If I remember correctly, oil needs to be at about $65 for oil shale development to be a viable economic enterprise.  In addition, at this price of oil, the return on investment in the development of alternative energy sources becomes untenable.

I love the very low prices of gasoline these days.  After all, I drive a gas-hog Suburban.  However, I would be content to pay $2.00 a gallon if the price of oil required a gas price of that level.  A whole lot of good things related to alternative energy would result.

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I'm very happy to see the "green" momentum continue even as gas prices fall.  I thought maybe people would back off drilling and alternative energy as gas became cheaper.  Doesn't look like that is happening.  

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I'm very happy to see the "green" momentum continue even as gas prices fall. I thought maybe people would back off drilling and alternative energy as gas became cheaper. Doesn't look like that is happening.

I'd like to see that BS fall into a bottomless pit.

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Personally, I am very comfortable with the price of oil holding in the $60 neighborhood.  It allows the oil companies to drill for oil and still make a profit from the production of any oil discovered.  The unfortunate thing is that, at $60, North America's vast resources of oil shale reserves will probably now remain un-developed.  If I remember correctly, oil needs to be at about $65 for oil shale development to be a viable economic enterprise.  In addition, at this price of oil, the return on investment in the development of alternative energy sources becomes untenable.

I love the very low prices of gasoline these days.  After all, I drive a gas-hog Suburban.  However, I would be content to pay $2.00 a gallon if the price of oil required a gas price of that level.  A whole lot of good things related to alternative energy would result.

As part of a comprehensive energy independence program, the development of our shale oil reserves should be top priority. From a purely economic perspective, oil is just another commodity whose price is very volatile. I maintain oil is a national security issue. We, the United States Government, should guarantee a price floor for oil derived from shale. In the grand scheme, I don't care if that is $65 or $100. Have we already forgotten what we went through just a few months ago?

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I'm very happy to see the "green" momentum continue even as gas prices fall. I thought maybe people would back off drilling and alternative energy as gas became cheaper. Doesn't look like that is happening.

I'd like to see that BS fall into a bottomless pit.

Not me. I'm not much into "global warming," but clean cars, responsible drilling and clean coal all sounds appealing to me. I think hyrdrogen powered cars are past due. It's the most plentiful element in the universe. And we've known about it's potential energy for many decades. They should have been on the market for years.

And if getting off oil does a double-tap on Russia's, Venezuela's, and Iran's economies, all the better.

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