Whither Oil?

Most of the recent discussion about oil prices has focussed on short-term Katrina-related issues. Given the release of additional gasoline and crude supplies from IEA stocks the gas-spike has proved to be very short term and crude prices have dipped significantly. But all of this only serves to mask further the fact that we really don't know where we are headed from here on in. This article is pretty typical in this sense:

Crude oil rose a second day in New York after a report showed Hurricane Katrina caused a larger-than- expected decline in U.S. inventories.

Stockpiles fell 6.6 million barrels last week, the Energy department said yesterday, three-times the drop forecast in a Bloomberg survey of analysts. More than half of U.S. Gulf oil output remains shut after last month's storm damaged platforms in an area accounting for 30 percent of U.S. production.

``There isn't any chance of oil prices falling for now,'' said P.K. Goyal, executive director at Indian Oil Corp., the nation's largest refiner. ``With the current supply and winter demand nearing, prices will stay at these levels. If there is any disruption in supplies, prices will rise.''

and don't miss this:

Crude-oil prices may rise through 2007 because of growing demand and limits to increasing supply capacity, said UBS AG, Europe's biggest bank by assets.

The bank raised its forecast for the average price of West Texas Intermediate, a U.S. benchmark variety, for 2005, 2006 and 2007. Average prices may climb to $64 a barrel next year and to $66 in 2007, the Zurich-based bank said. Earlier, it expected prices to peak this year.

Of course the truth is no-one really knows, just too many imponderables. Still, one thing is for sure: I never read anyone who suggested increasing uncertainty was a *good* thing.