Oil Price - Feb 15

[dan_s]

I look at a lot of technical analysts' projections ("SWAGs") and they all think $55/bbl for WTI and $65/bbl for Brent are key resistance levels, that once broken open the door for much higher oil prices. [ "SWAG" is a scientific wild ass guess.] Just remember that when most of the hedge fund managers believe in a SWAG it tends to become a self-fulfilling prophecy. Oil prices are determined by the "Herd".

Example: This is from an analyst based in London

Oil strongly pushing major resistance
"Oil has struggled during previous periods of risk aversion but, like its fellow commodities, is fond of a weaker dollar and is continuing to respond to favourable reports this week, including Saudi Arabia’s commitment to cutting output by an additional 500,000 barrels per day by March. Brent and WTI are both now seriously testing a major resistance zone, around $65 and $55, respectively, the break of which could be the catalyst for another rally."

MY TAKE: As I have said in all of my podcasts this year, the "Right Price" for WTI is somewhere in the $60 to $65 range today. I believe there should be at least $10/bbl in the price because of the significant geopolitical risk to supply in the Middle East and North Africa. Note that I say "today". That's because I think demand for oil based products will exceed supply within 90 days (BTW IEA agrees with me on this point) and the situation with Iran and IMO 2020 regulations will push WTI much higher in 2H 2019. How high depends on the resolution of Trump's Tariff War with China. Raymond James top energy analysts is forecasting $90/bbl WTI within twelve months.

All of my forecast/valuation models still assume that WTI will average $52.50/bbl in 2019 and $60/bbl in 2020. That assumption now looks extremely conservative.

[dan_s]

Technical stuff: "The Bollinger Bands are squeezed, which is often a precursor to a big move."
Read: https://www.investing.com/analysis/crud ... -200388942

Each of you needs to decide where you believe oil prices are heading. All I can tell is that our Sweet 16 is trading as if WTI is $40/bbl and going to stay there forever. All of our Sweet 16 companies are profitable with oil at $50/bbl and natural gas at $2.50/mcf. IMO the oil price is going a lot higher and natural gas should stay over $2.50, unless March weather is extremely mild.

Goehring & Rozencwajg sent out an update on the global oil market this morning. If you'd like to read it, send me an email: dmsteffens@gmail.com
Here is the opening paragraph:
"While the severe weakness over the past several months has been the result of short-term policy errors, it has hidden many long-term bullish underlying fundamental trends currently taking place in global oil markets, all with potentially large consequences. Now that OPEC has cut production, many of these bullish trends will start to regain importance as global oil markets slip back into deficit."