Barreling Ahead

Industry exec advises caution in looking at oil forecast numbers; offers own predictions

Linda Abu-Shalback Zid, Senior Editor

LAS VEGAS -- Don't believe everything you hear when it comes to oil, said Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service (OPIS). Kloza pointed out that industry predictions fluctuate from oil collapsing at $20 to a $175 spike. "Both are excessive," he told the audience at his "Oil by the Numbers" presentation during the 2009 NACS Show in Las Vegas, adding that the tendency is to make excessive predictions to get attention. Trading oil, he said, is "kind of like a hydroelectric plant; they live off the turbulence."

Speaking of the current [image-nocss] state of the industry, he referred to a "bulging midsection" of demand. "That's what the oil business really has right now. Gasoline demand is okay, diesel demand is just awful, heating oil demand is just awful." He added that diesel is currently about 10% as profitable as it was in late 2008, when refineries could count on making $20 a barrel. At that time, the price of gasoline dipped below the price of crude. "And it did that because there were such high profits that could be made from diesel.... And now it's probably $2 or something in that neighborhood," he said, referring to diesel as the "take my wife, please" of the oil business.

As for his own predictions for oil in the near future, he said that while $20 a barrel is not likely this year, a return to that range will probably happen within the next four years. And there is "really no case for $100 a barrel oil." He also said that retail gasoline price points for next spring/summer would be in the $2 range, and not likely to hit $3 or higher. He added, "It would take something like intervention in Iran, and even then it would be a short-term reaction."

Kloza's other predictions included:
Government regulation. "We are going to see Washington do something on the regulatory side to make the oil futures, options and derivatives markets a little bit more like casinos, with some casino rules," he said.
Continued seasonality implications. "Last year, we was saw price go up 167%, from the December number to the peak number in June. The average year to year is probably about 67%."
New players in downstream markets. "You're seeing this a little bit with the international traders," he said. "And we'll see the exiting of a lot of the less efficient suppliers."