Lower Oil Prices?

Handelsbankens equities analyst Lars Maurius Furu thinks so. Following is an excerpt from his email to clients yesterday (thanks to reader J.J. for forwarding it along):

An article in the Washington Post on Saturday, primarily focused on Saudi Arabia's political ties and tensions with the US government, revealed one interesting statement that we believe is relatively new to the market: that Saudi Arabia has very aggressively marketed its products in the US for deliveries in December, according to the Department of Energy. The sources say that the country now produces more than 1 million bpd above its quota. The quota set for 2002 is 7.05 mbpd. The most aggressive estimates of October 2002 Saudi production was 7.75bpd. still the highest for 14 months. The article thus suggests that the Saudis have increased production even more in November, even after the chute we saw in the oil price in October.

This is an indication that the Saudis are starting to see the logic in allowing lower oil prices for a while in order to restore demand, put a brake on new non-OPEC projects, and increase their own power within OPEC. The article suggests that Saudi Arabia has
been able to build foreign exchange reserves of USD 90-100bn in order to weather these measures. If the article's sources are correct, this is exactly our base case oil price scenario only we did not expect to see this clear indications of it until the end of Q1.

Our forecast oil price for 2003 is USD 18/bl, with USD 22/bl in Q1, USD 18/bl in Q2, and USD 16/bl. We expect OPEC will be able to stabilise the oil price at around USD 18/bl from 2004 on. Please refer to our Statoil report ("What if OPEC makes a turn?" of
November 11).