Energy Prospectus

WTI heading to over $70: https://www.investing.com/analysis/char ... -200299603

The "Wall Street Herd" can change directions very quickly. I am now seeing a lot of "love" for oil.

Goldman Sachs predicts Brent will go over $82 by year-end.

Raymond James says WTI will average $70/bbl in Q4. So far, their analysis has been right on target. Not just their price targets, but the reasons for the targets. RJ has been saying for almost a year that global demand for oil will exceed supply in Q2 2018 and IEA finally agreed with them last week. My opinion is that demand will exceed supply by a lot this summer; 2 million barrels per day. Oil demand is very seasonal. Q1 is the low point for the year. It is a "day dream" that U.S. shale oil can meet global demand if the global economy is growing by over 3%.

Remember that in a world with slower growth, demand for oil increased by 2.3 million barrels per day from Q1 to Q2 in 2017. OECD inventories are falling today and we aren't to Q2 yet. The rate of decline will accelerate in Q2.

The Sweet 16 is trading as if oil is still under $50/bbl.

There is strong resistance at $66/bbl for WTI. A close above $67/bbl actually sets up a quick run to $75/bbl on the charts.

Just in >>>> See how fast the "herd" can change:

Martijn Rats, CFA – Morgan Stanley
March 21, 2018 9:00 PM GMT

Seasonal headwinds to oil demand will become seasonal tailwinds from April/May onwards. After that, our balances show undersupply and further inventory draws. In recent days, flat prices, time spreads and refining margins have all been perking up. Our thesis is that this will continue into 2H.

After some softness, oil market are perking up: Seasonality typically weighs on oil demand at this time of the year. However, we are only 3-4 weeks away from peak refinery maintenance, after which crude and product demand should accelerate. The front month Brent futures is already the May contract, and this will soon roll over into the June one. Hence, oil prices are already starting to reflect the period when seasonal tailwinds start to emerge.

We expect inventory draws to resume from April/May onwards: With oil markets 0.4 mb/d undersupplied in 2017, and demand set to grow 1.6 mb/d, supply would need to increase by 2.0 mb/d to balance the market.

With OPEC and Russia likely flat, all of this would fall on the rest of the world. Despite US production growing 1.2 mb/d, on our estimates, and Canada and Brazil another 0.5 mb/d combined, we do not expect this gap to be closed.

For 2018, we still see a global deficit of ~0.3 mb/d, concentrated in 2Q-4Q.With inventories already low, geopolitical risk is exacerbated: Expressed in days of demand cover, observable global inventories are already at the bottom end of the five-year range.

With the inventory cushion largely gone, oil prices will likely be more sensitive to geopolitical risk factors again. Several 'hot spots' could provide ongoing price support.

US shale is unlikely to derail our thesis: Guidance from 56 US E&P companies implies total shale growth of ~1.1 mb/d in 2018, and several factors likely limit growth much beyond that.
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A month ago Morgan Stanley was bearish on oil, but the "Lead Dog" (i.e. GS) says it is time to get bullish.