Oil Price Forecasts - August 18

[dan_s]

Energy Aspects: Oil prices should be $10 higher. The rapid decline of U.S. oil inventories in recent months suggests the market is tighter than everyone thinks. “Prices should be $10 higher given where the fundamentals are,” Amrita Sen, chief oil analyst at Energy Aspects, told the WSJ. She said that investors have been too worried about rising U.S. oil production. “The market is so obsessed with supply. If U.S. output is going up and stocks are drawing that is an extremely bullish development,” she said, arguing that rising demand is being overlooked.

MY TAKE: I agree with Amrita that the market is obsessed with the FEAR of rising U.S. oil production. The global oil market is moving toward 100,000,000 barrels per day of demand by the end of 2018. The U.S. now produces 9.5 million barrels per day, less than 10% of global oil production. How can a country that has to import 45% of the oil it consumes have such a big impact on the global price of oil? Demand for oil based products will increase by 1.5 million barrels per day from Q2 to Q3 and probably increase a bit more in Q4. The United States cannot meet rising global demand for oil on its own. It is simply not possible.
I expect U.S. oil production to drift up to around 10.0 million barrels per day by sometime in the 2nd half of 2018. Production growth will stall unless the price of oil goes a lot higher.

Citi: Oil stuck between $40 and $65 for next five years. Citi says that oil will be stuck within the range of $40 to $65 through 2022, although the bank said that this assumes “smooth sailing” for the oil market. In other words, some unforeseen shocks could temporarily push prices outside of that range. If disruptions are resolved, which restore supply to the market, prices could crash below $40, but outages could cause prices to jump above $70. But beyond that, prices will be range bound.

MY TAKE: The Middle East and North Africa are a mess. Most of the OPEC countries are "Failed States" that cannot survive much longer at $50 oil. So, the odds are "smooth sailing" for five years is near 0%. I wonder if Citi has checked out Venezuela lately.

[dan_s]

Iran threatens pull out of nuclear accord. The U.S. has added more rounds of sanctions on Iran this year, but the harder line from the Trump administration has provoked Tehran into threatening to withdraw from the landmark 2015 nuclear deal. “Iran will certainly return to conditions much more advanced than before the negotiations started in a short period, not on a weekly or monthly scale, but on a daily and hourly scale” if the U.S. continues to step up sanctions, Iranian President Hassan Rouhani said.

So much for "smooth sailing".