Is oil returning to US$100 or dropping to US$10?

IF you have been following the price of oil over the last few months, the chances are you're a little confused. On the one hand you have the likes of A Gary Shilling who, in a recent Bloomberg article, loudly trumpets the prospect of oil at US$10 a barrel, and on the other there is T Boone Pickens, who, at the end of last year was predicting a return to US$100 within 12-18 months. Pickens' prediction has moderated somewhat as WTI and Brent crude have continued to fall, but in January he was still saying that oil would return to US$70 or US$80 per barrel in the near future. So, who is correct?

The answer is neither one. As with most things in life it is unlikely that the truth lies at either extreme. Mr Pickens, and Mr Shilling and other commentators suggesting that oil will fall to levels not seen since 1998, purport to have sound reasons for saying what they do, but the real reasons for such comments are most likely the two oldest human motivations in the book, greed and hubris.

"Talking your book" is nothing new in financial markets and, while Mr Pickens has an insider's knowledge of the oil business, he also has a massive stake in driving oil higher however he can. Mr Shilling is in the business of garnering eyeballs and clicks, hence the competition for the most outrageous prediction among the bears.