AUTOSHOW-GM says oil price to drop (Buy more SUVs!)

[Globalist]

http://yahoo.reuters.com/news/articl...mktNews&rpc=44

AUTOSHOW-GM says oil price to drop, yen undervalued


By Kevin Krolicki

DETROIT, Jan 9 (Reuters) - Oil prices are set to decline sharply in 2007, dropping as low as $40 per barrel because of increasing production and a slowing U.S economy, the chief economist of General Motors Corp. (GM.N: Quote, Profile , Research) said on Tuesday.

"Last year, I said oil prices would be in the forties," GM chief economist Mustafa Mohatarem told a conference of auto analysts. "Obviously, I missed that forecast by a few dollars. I think they will be in the forties this year."

In January, 2006, crude oil on the New York Mercantile Exchange was trading in the mid-$60 level, rising to a record high of $78.40 in mid-July. On Tuesday, crude oil was trading slightly under $55, the lowest level in 1-1/2 years.

Oil traders have cited forecasts for heating oil demand in the United States to average about 24 percent below normal for this time of the year due to abnormally warm winter weather.

Mohatarem on Tuesday cited rising oil production from non-OPEC economies and slower global economic growth as reasons for forecasting a slide in oil prices, a move that could take some of the pressure off the embattled U.S. auto industry.

"On the balance, the risk for oil prices is that they are more likely to go down than to go up," he said, saying one Wall Street forecast for $100-per-barrel oil had convinced him that the market was peaking.

"This morning the price is down to $54, so we're on our way to $40," he said.

CURRENCY BATTLES

Mohatarem also said the yen was more undervalued against the dollar than at any time since the early 1980s, providing a major competitive advantage to GM's Japanese rivals such as Toyota Motor Corp.(7203.T: Quote, NEWS , Research)

"The yen's trade weighted value is now weaker than it has been since 1982," Mohatarem said. "That explains the success of some of our Japanese competitors. The yen is back to where it was in the 1980s. And we remember what the 1980s were like."

The dollar was trading near 119.40 yen on Tuesday.

U.S. auto executives have long complained about what they see as currency manipulation by Japan's policy makers intended to keep the value of the yen artificially low. But Mohatarem's comments were especially pointed with GM on the brink of losing its global No. 1 ranking in auto production to Toyota.

"The puzzling thing is why an advanced country like Japan would continue to pursue a policy of export-led demand," he told the meeting of the Society of Automotive Analysts.

By keeping the value of the yen low, Japan's monetary policy makers are also suppressing domestic demand, crimping auto sales in Japan and leaving the economy more vulnerable to an external shock, Mohatarem said.

"When a country continually devalues its currency to support exports, it's suppressing domestic demand," he said. "If the yen remains that weak, domestic demand will be weak."

In apparent rebuttal to those remarks, Jim Press, president of Toyota Motor North America, began his keynote speech at the same event by "confessing" that the automaker's success had been fueled first and foremost by foreign exchange manipulation, rather than rising sales of its popular cars.

"We've made so much money manipulating currency...our arbitrage group has been doing very well," he said.

While Japanese exporters were indeed enjoying windfall profits from a weakening yen, Press said that Toyota had grown into the strong company that it is today through its resilience in surviving a period when the dollar briefly fell to 79 yen.

"Adversity is always what's been great for us," Press said. "Instead of wondering and wishing where the yen would go, what we had to figure out was a new way of building cars and trucks."

Press added that the dollar was at 360 yen when he joined the company, in 1970, and that forecasters predicted Toyota would go out of business if the dollar weakened to 280 yen.

At the conference for the Big Three economists, GM's Mohatarem also took a stab at the Chinese currency, saying he expected the U.S. Congress with a newly installed Democratic majority would also put pressure on China to allow a further appreciation in the renminbi.

"I think we're going to see in the new Congress a lot of talk about China and China's currency," he said, adding that it was key that Beijing be allowed to manage a "slow appreciation" for the currency.

"China has become enough of a force in the global economy that we don't want to cause volatility in the Chinese economy," Mohatarem said.

(Additional reporting by Chang-Ran Kim)

[metox69]

Ahhh like the housing bubble, the oil continues to deflate minus the $hit happens factor in oil production...

[BusyBody]

Can someone please explain the statement
"When a country continually devalues its currency to support exports, it's suppressing domestic demand," he said. "If the yen remains that weak, domestic demand will be weak."

Why does devaluing the Yen help Toyota? Sorry for the ignorance, but I don't know much about how currencies operate or how they are valued. I need some remediation!

[metox69]

Originally Posted by BusyBody

Can someone please explain the statement
"When a country continually devalues its currency to support exports, it's suppressing domestic demand," he said. "If the yen remains that weak, domestic demand will be weak."

Why does devaluing the Yen help Toyota? Sorry for the ignorance, but I don't know much about how currencies operate or how they are valued. I need some remediation!

http://en.wikipedia.org/wiki/Devaluation

[Globalist]

DETROIT, Jan 9 (Reuters) - Oil prices are set to decline sharply in 2007, dropping as low as $40 per barrel because of increasing production and a slowing U.S economy, the chief economist of General Motors Corp. (GM.N: Quote, Profile , Research) said on Tuesday.

"Last year, I said oil prices would be in the forties," GM chief economist Mustafa Mohatarem told a conference of auto analysts. "Obviously, I missed that forecast by a few dollars. I think they will be in the forties this year."

In January, 2006, crude oil on the New York Mercantile Exchange was trading in the mid-$60 level, rising to a record high of $78.40 in mid-July. On Tuesday, crude oil was trading slightly under $55, the lowest level in 1-1/2 years.

I don't see how he missed his forecast ($40) by only few dollars with a peak of $78. At least here at GMI, we did better in terms of crystal ball :-)

This was my response to a thread initiated by Perian about oil prices forecast for 2006

Re: Oil Hits $ 61 A Barrel
________________________________________
A few months ago, you posted an article where analyst predicted that crude could reach $105 this summer.

My response was: It won't reach $105. Maybe $75 this summer for sure.

And I stick to it. No more than $75 :-)

[BusyBody]

Originally Posted by metox69

http://en.wikipedia.org/wiki/Devaluation

Thanks!

[Globalist]

"On the balance, the risk for oil prices is that they are more likely to go down than to go up," he said, saying one Wall Street forecast for $100-per-barrel oil had convinced him that the market was peaking.

"This morning the price is down to $54, so we're on our way to $40," he said.

This is a very optimistic forecast based on a very peacefull 2007.

[metox69]

Originally Posted by BusyBody

Thanks!

No problem!

[ATPeele]

I can't back this up with any quotes, but I've read several times that the price of oil and gasoline this summer will be lower than last summer as oil producing countries and oil companies try to take some of the momentum away from the budding alternative fuel movement.

Apparently they've found a little wiggle-room in their pricing/record profits to crush ethanol. Assuming E85 only gets 66% of the mileage of gasoline, no one will buy it if the price is more than 66% of the price of gas.

[wolverine]

Originally Posted by Globalist

This is a very optimistic forecast based on a very peacefull 2007.

That is the key. A peaceful 2007 is needed for oil prices to continue to lower in price, but once Israel bombs Iran's sites that are trying to develop nuclear technology all bets are off.

[prowlerjc]

^That'll happen.

[CBECK]

If Isreal attacks Iran, the U.S. has no choice but to act. I am speaking hypothetically, but if this happens won't this drive up oil or is Iran not a big supplier to us?

[jon21]

The crazy OPEC will decrease their production to counter the sinking oil price. They have always screwed us like that by shutting down one or more of the oil pumps to keep the oil price stable. The days of cheap oil and gas are long gone. $2.00+ in gas price is the new norm now. We still have many conflicts all over the world and constant natural disasters. I do not really see how oil can go under $50.00 a barrel in the near future. OPEC pretty much control the oil price and production. Diesel Plugin Hybrid can’t come soon enough.

[johnny smallblock]

Originally Posted by jon21

The crazy OPEC will decrease their production to counter the sinking oil price. They have always screwed us like that by shutting down one or more of the oil pumps to keep the oil price stable. The days of cheap oil and gas are long gone. $2.00+ in gas price is the new norm now. We still have many conflicts all over the world and constant natural disasters. I do not really see how oil can go under $50.00 a barrel in the near future. OPEC pretty much control the oil price and production. Diesel Plugin Hybrid can’t come soon enough.

Everytime oil prices shoot up, people buy smaller cars and start demanding alternative fuels. OPEC wants neither. So they will bring prices down to keep us passive about development, and keep us in our big trucks.

[Geotpf]

Originally Posted by CBECK

If Isreal attacks Iran, the U.S. has no choice but to act. I am speaking hypothetically, but if this happens won't this drive up oil or is Iran not a big supplier to us?

Iran is a big supplier in general. It doesn't really matter if they supply us directly with anything; it all ends ups in one big pool. If thier production is disrupted, or there's even a threat of a disruption, that will cause prices to increase.

Plus, it's bigger than that. If Israel bombs Iran, Iran may very well either bomb Israel back, or invade Iraq to attack the American troops there (or both). Iran will make no distinction between Israel and the United States; they will consider an attack by either as an attack by both.