Oil Prices Could Go Either Way - $90 or $50?

That's what the WSJ is saying today in this article.

Here's some current thinking from the article:

Scenario #1 - Oil Goes UP (long OIH or long DIG)

Recent price gains are largely based on forecasts for a global oil-supply
deficit over the rest of the year and into 2008. If the shortfall -- which
analysts suggest could be more than one million barrels of crude oil a day --
materializes, it would provide considerable incentive for the large financial
investors who have played a strong role in the oil rally to stay in the market
and push prices even higher.

Scenario #2 - Oil goes DOWN (short OIH or long DUG)

If expectations for a warm Northern Hemisphere winter increase or there are
signs of a sharp slowdown in U.S. growth, analysts expect some of these
investors will run for the exits and push oil prices lower. That could mean
prices as low as $50 a barrel.

Keep your eyes on....

SUPPLY & DEMAND FORECASTS - "Because expectations of a supply deficit are influencing the direction of oil prices so heavily, any revisions to supply and demand forecasts will likely have a large impact on the outcome."

WEATHER - "The biggest possible reasons why demand may fall short of forecasts are that the subprime-mortgage crisis continues to ripple through the economy and the recent trend of warmer-than-normal winters continues...Seasonal forecasts from the the National Weather Service call for above-normal temperatures in the Northeast, the world's largest heating-oil market, from September to December and hint this could continue through March."

U.S. RECESSION - "Analysts also are mixed on the outlook for U.S. and global economic growth. UBS economists see a 40% chance of a U.S. recession as a result of credit concerns. If this occurs, the bank sees the slump spreading to other economies and pulling oil prices back near $50 a barrel."

What analysts are saying...

UBS - "A modest [economic] slowdown and relatively warm winter weather is our base case, in which prices moderate in the fourth quarter and the first quarter of 2008," noted Jan Stuart, energy economist at UBS in New York, in a recent report. UBS AG forecasts a 600,000-barrel supply deficit and that futures will average $69 a barrel in the fourth quarter.

GOLDMAN SACHS - Goldman Sachs, which is predicting $95 oil at the end of 2008, says the probability of a U.S. recession is "rather low" and that demand from less-developed countries will likely support oil prices if U.S. demand moderates. Goldman Sachs, which expects oil prices to finish the year at $85 a barrel, is predicting a big supply deficit: 1.4 million barrels a day on global oil demand of 87.8 million barrels a day. Its forecasts are closely watched in oil markets because they are big traders of commodities.

My best guess...

Oil will follow historical seasonal pricing patterns (weak in the fall) and negatively impacted by warmer than average winter in the U.S. (hey, remember we have global warming!). I expect we see the price of oil start to fall this month...and the OIH falling along with it.