Tom Scollon
Tom Scollon
Chief Editor

As OPEC meet to decide on production cuts, that they think may or may not affect the price of oil, I thought I would contemplate what may happen regardless of what OPEC do. Mind you if the price of oil goes up they will think it is all because of the collective wisdom of producers.

But this is not a simple matter and as much as OPEC may disagree with Tom Scollon – and who is he they might ask – there are wider and complex market forces at play. OPEC is only one dimensional.

As with most words there is more than one meaning. So ‘fix’ could mean in the sense of fixing a horse race or it could mean just simply solving a problem. I will not waste energy on debating which meaning is appropriate here.

But OPEC could save themselves a lot of energy (excuse pun) just by looking at my Elliott chart:

Chart 1

click chart for more detail
click to enlarge

Regardless of what OPEC decides oil is likely to fall further in the coming weeks - and yes to a level below which it is not profitable for some producers and certainly at a level where no new investments will be attractive – well at least at the low of around US$50.

But we know that ‘lows’ are often just that – a point where price rests or touches for a period. But we all know that despite this current global malaise eventually things will get better. And unfortunately oil will be back above $US100.

But right now $50-70 is about what the world wants to pay for oil.

Hi OPEC there is a recession out there – ease up just for a little while. The market will look after price this time around.

Enjoy the ride

Tom Scollon
Chief Analyst