Crude-oil prices aren’t fundamentally sustainable at $90 a barrel, said Thomas Petrie, vice chairman of Merrill Lynch & Co.
Petrie, in an interview Wednesday, responded to comments made earlier by Saudi Arabian Oil Minister Ali al-Naimi, who said there is “no relationship” between today’s price and fundamental supply and demand.
“Is there enough oil produced to meet demand today, and I think the answer is fundamentally yes,” Petrie said. “It is fair to say on a pure supply-and-demand calculation, it would not be unreasonable to expect prices to reach equilibrium at a lower price.”
Petrie said oil prices are at better equilibrium between $75 and $85 a barrel.
Denver-based Petrie carries a reputation as a pre-eminent energy analyst. In 1989, he co-founded Petrie Parkman & Co., an energy investment-banking firm that handled dozens of major mergers and acquisitions in the oil-and-natural-gas industry.
He sold the firm last year to Merrill Lynch. He was named a vice chairman of Merrill Lynch and a member of the Executive Client Coverage Group, a group of senior officials who call on important clients.
At a 2005 “peak oil” conference in Denver, Petrie said world oil production could peak between 2010 and 2015, with a subsequent gradual decline in oil supplies and higher prices.
“This is not a catastrophe,” he said at the conference, “but the time to deal with it has come.”
On Wednesday, crude oil for January delivery fell $3.80, or 4 percent, to settle at $90.62 a barrel on the New York Mercantile Exchange. It was the lowest close since Oct. 30. Futures reached $99.29 on Nov. 21, the highest intraday price since trading began in 1983. Prices are up 49 percent from a year ago.
Oil prices moderated in the past several days on signals that the Organization of Petroleum Exporting Countries is increasing production in efforts to forestall a global economic decline.
“Once we moved from $70 to $90, at the upper end of that range, we’re getting into a zone where demand destruction is happening,” Petrie said. “We’ll probably be able to measure it in the next six to nine months. I think the Saudis are worried about that, which they should be. They learned a very painful lesson in the early ’80s about ‘overstaying the party’ on demand destruction.”
Denver Post staff writer Steve Raabe contributed to this report.
