Are oil prices about to drop sharply? Analyst Matt Badiali believes that they are. In an article in The Growth Stock Wire, Badiali points out that US oil inventories are higher than average, while demand there is falling, down 13% from its 2007 peak. At the same time, supply in Saudi Arabia is growing, with spare production capacity ready to come on line.
"The only reason prices are still high is continued tension in the Middle East. The market is concerned that come July 1, 2012, the oil sanctions on Iran will cause shortages around the world. And as long as the market is worried about the outcome, prices can stay high. But as soon as tensions ease, the conditions are right for a big drop in oil prices," Badiali writes.
Last year, Badiali notes, the price of oil peaked at $113 a barrel in April, and then dropped 36% by September.
"I don't believe that fear can sustain this oil rally much longer. There is simply too much oil piling up, especially in the US," Badiali concludes.
Published by Globes [online], Israel business news - www.globes-online.com - on April 8, 2012
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