Magazine's curse gives Opec new heart

"HOW LOW can oil prices go?" queried Business Week in its 30 March issue. As low as $10 a barrel, according to analysts polled by the magazine with the knack for featuring a trend just as it is about to end.

Who can forget Business Week's famous 1979 cover - "The death of equities" - prior to the onset of the biggest bull market in history? The bull didn't actually start to roar until August of 1982, but if you had bought stocks in 1979 - counter-traded the cover, so to speak - you would have lost a little in the short run to make a bundle in the long run.

Then there was "Trouble in bond land" in July 1984, when the yield on the 30-year Treasury bond flirted with 14 per cent before it embarked on a stunning, non-stop forced march to 7 per cent by April 1986.

In October 1984, Business Week touted "The super dollar" on its cover, a few short months before the leading industrial nations of the world got together and decided that the buck stopped here and now. In February 1985, the dollar peaked at 263 yen and 3.45 German marks. By February 1987, with the value of the dollar cut almost in half, the Group of Seven nations had to huddle again to prevent the dollar from sliding into oblivion.

The next time Business Week calls you up and wants to feature you on its cover as the next Bill Gates, you might want to take out some added insurance.

Those who have made a scientific study of magazine covers - Ned Davis of US-based Ned Davis Research and Paul Macrae Montgomery of Legg Mason Wood Walker come to mind - explain the phenomenon this way: by the time a trend becomes so popularised that it makes it to the cover of the weeklies, just about everyone is on board and the trend is ready to end.

"In general, a trend has about a month or so left to run by the time it's memorialised on Business Week's cover," says Jim Bianco, research director at Arbor Trading Group. "It takes about that long for the retirees living in Florida to commit their last dollar."

While "How low can oil prices go?" was not the Business Week cover story, the question did serve as an ironic counterpoint to the decision last weekend by Saudi Arabia, Venezuela and Mexico to cut their oil output in an effort to reduce the global glut and hopefully boost the price from its lowest level it has reached in more than a decade.

On Monday the market responded to this by pushing the oil price 14 per cent higher, recording the largest one-day gain in eight years. Crude oil prices last week jumped almost $4 to $16.83 in New York from the low of $12.90 a barrel they reached the week before.

Traders are now waiting to see just how much oil could be cut from the market. The Opec meeting tomorrow, with all members present, will have to ratify the cutback in quotas in line with the planned reductions in output. The cuts could amount to about 2 per cent of world supply. As recently as the last full meeting in Jakarta in November, Opec members opted to boost quotas by 10 per cent.

Since then oil prices have fallen as much as 35 per cent on oversupply concerns spurred by rising production and falling demand in the northern hemisphere on the back of a mild winter and weaker-than-expected demand in Asia following its economic crisis.

The Opec initiative to cut supply could be followed elsewhere. Norway, the world's largest oil exporter after Saudi Arabia, wants to cut output by between 3 per cent and 6 per cent, although the minority government faces opposition in parliament which could scupper the plan. Russia, too, appears to be mulling its stance. Acting Deputy Prime Minister Boris Nemtsov said he would invite Opec officials to discuss the crisis in the oil markets.

"The oil exporters looked into the abyss and saw very low oil prices, which is what got them together," said Daniel Yergin, author of The Prize, a Pulitzer prize-winning history of the oil industry and president of Cambridge Energy Research Associates in Massachusetts. "If there is a credible pact that is above a million barrels a day, that will persuade the market."

If the pact holds, prices could average $15 to $16 a barrel this year. The curse of Business Week may have struck again.

q Additional reporting by Stephen Voss.

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