Downside Risk in Global Oil Markets -- How Likely?

Recent articles on The Oil Drum and Financial Times are warning of the risk for an oil price decline within the next several months. Veteran energy blogger Brian Westenhaus and even one of our own energy analysts have also warned of the possibility for a near-term downward trend in oil pricing. Here's more:

...my forecast is that the crude oil price will fall dramatically during the first half of 2012, possibly as low as $45 to $55 per barrel...As the price collapses we will see producer nations generally and OPEC in particular once again going into panic mode, and genuinely cutting production. _More from Chris Cook in The Oil Drum

Here is a Financial Times blogpost looking at the effect of a downward plunge in global oil prices on oil producers that are dependent upon energy exports to finance national budgets:

A drop in oil prices from the current level of around $113 a barrel to, say, below $85 (Brent pricing) would likely shift policy-making in these countries in more unpredictable directions, both positive and negative, as governments would be forced to turn to other sources of revenue.

Markets are shifting their focus from this year’s decline in OPEC production due to the Libyan conflict – to increases in output as Libya comes back on stream and Iraqi production grows in 2012.

Countries including Russia, Nigeria, Venezuela, and most importantly, Saudi Arabia, have recently ratcheted up the oil price assumptions that are used in national budgets. The shift toward higher assumptions has been driven by recent high prices, but more importantly, by growing spending needs.
_Eurasia Group in Financial Post

If these higher-price assumptions prove faulty, Russia, Venezuela and Iran in particular will be hard-pressed to provide enough social spending to contain popular and political discontent.

Meanwhile, the shale oil & gas revolution is spreading to China, and will soon be pushing up production in a wide array of locations on multiple continents. Such a runup in hydrocarbon production in nations that are traditionally seen as consumers rather than producers, will shift the global energy picture noticeably -- and alarmingly, for many energy exporters who are playing it too close to the edge in terms of spending.

Trends in coal to liquids (CTL) and how CTL will help reduce demand for crude oil

Significant risk of economic downturn in China, reducing global demand for commodities including crude oil.