<<Conserving oil no longer necessary for US, says Trump administration>> There's bountiful supply and it should be cheap. Duh. No wonder the market's confused.
AP: https://www.theguardian.com/us-news/201 ... nistration
It's probably a mistake to project the price of oil in terms of Iranian sanctions. If the price of crude threatens the economy here, the Administration will probably declare that "We taught them a lesson" and modify or curtail sanctions.
Oil Price
Re: Oil Price
What Trump and most people don't understand, is that "Cheap Oil" peaked a long time ago. We are now harvesting oil directly from the source rock (shale) and it is a very expensive process. Within a few years the Tier One areas of the major U.S. shale plays will be drilled out. Then the price of oil will need to be a lot higher.
It should be noted that Raymond James' oil price forecast (slide 4 of the podcast) assumes that the sanctions against Iran only take ~250,000 BOPD off the market. I've seen forecasts from highly respected analysts that estimate Iranian oil exports will drop 700,000 to 1,000,000 BOPD by year-end.
If you would like to see the details behind RJ's oil price forecast, send me an email: dmsteffens@comcast.net
It should be noted that Raymond James' oil price forecast (slide 4 of the podcast) assumes that the sanctions against Iran only take ~250,000 BOPD off the market. I've seen forecasts from highly respected analysts that estimate Iranian oil exports will drop 700,000 to 1,000,000 BOPD by year-end.
If you would like to see the details behind RJ's oil price forecast, send me an email: dmsteffens@comcast.net
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Oil Price
Below comments were cut from today's Raymond James "Energy Stat" report. I post them here because I brought up the topic of the impact on oil prices of a strong U.S. dollar and IMO 2020 in my podcast.
Will U.S. dollar strength and IMO 2020 be game-changers for the global oil markets?
We do not pretend to be currency experts, but in a dollar-denominated global oil market, the year-to-date trend of a rising U.S. dollar is inherently bearish for global oil demand – particularly in those emerging markets whose currencies have come under severe pressure. Turkey is currently the most recent textbook example of this issue, but it also manifests itself in Latin America and other parts of the world. On a currency-adjusted basis, the “real” price of Brent crude is currently close to $90/Bbl, only modestly lower than it had been in 2012-2014. This explains the recent fuel price protests in such countries as Brazil and South Africa. To be sure, the dollar will not rise forever – let’s recall, it had been weak for much of 2017 – but we have to keep an eye on it when thinking about risks to oil demand. Most investors don’t realize that one of the few years of negative global oil demand growth was in conjunction with a massive U.S. dollar spike during the 1998 “Asian Contagion”. Could that happen again with the potential for escalating trade wars?
IMO 2020 – the global regulation mandating low-sulfur fuel for marine vessels, taking effect in January 2020 has the potential to seriously shock the global oil and oil product markets and drive oil prices much higher over the next two years. It is an even more complex issue than exchange rates. For one thing, should IMO 2020 be looked at as a supply issue or a demand issue? Our
approach is to model it as a reduction in supply, essentially erasing 1.5 million bpd of heavy fuel oil that will become “stranded”, i.e. no longer available for use as marine fuel starting in 2020. Needless to say, removing 1.5 million bpd of oil supply would be VERY bullish for oil prices. Our discussions indicated that our 1.5 million bpd assumption in our oil model might even be towards the low end of the most educated industry experts who think the impact might be closer to 2 and 3 million bpd of “effective” reduced global oil supply starting in about 18 months. Some of the question marks include: (1) how much “cheating” will there be?; (2) how many ships will invest in scrubbers, thereby enabling them to keep using high-sulfur fuel?; (3) will the regulations be rolled back and enforced if they drive oil prices too high? and (4) how many refineries will invest in the relevant upgrades to process sour barrels? Even with our conservative forecast, however, an effective supply cut of 1.5 million bpd will likely lead to 2020 being the cyclical peak for oil prices – and thus a slow year for demand growth. We believe the main winners will be those refiners that can boost production of distillates in line with the boosted demand for marine gas oil.
Will U.S. dollar strength and IMO 2020 be game-changers for the global oil markets?
We do not pretend to be currency experts, but in a dollar-denominated global oil market, the year-to-date trend of a rising U.S. dollar is inherently bearish for global oil demand – particularly in those emerging markets whose currencies have come under severe pressure. Turkey is currently the most recent textbook example of this issue, but it also manifests itself in Latin America and other parts of the world. On a currency-adjusted basis, the “real” price of Brent crude is currently close to $90/Bbl, only modestly lower than it had been in 2012-2014. This explains the recent fuel price protests in such countries as Brazil and South Africa. To be sure, the dollar will not rise forever – let’s recall, it had been weak for much of 2017 – but we have to keep an eye on it when thinking about risks to oil demand. Most investors don’t realize that one of the few years of negative global oil demand growth was in conjunction with a massive U.S. dollar spike during the 1998 “Asian Contagion”. Could that happen again with the potential for escalating trade wars?
IMO 2020 – the global regulation mandating low-sulfur fuel for marine vessels, taking effect in January 2020 has the potential to seriously shock the global oil and oil product markets and drive oil prices much higher over the next two years. It is an even more complex issue than exchange rates. For one thing, should IMO 2020 be looked at as a supply issue or a demand issue? Our
approach is to model it as a reduction in supply, essentially erasing 1.5 million bpd of heavy fuel oil that will become “stranded”, i.e. no longer available for use as marine fuel starting in 2020. Needless to say, removing 1.5 million bpd of oil supply would be VERY bullish for oil prices. Our discussions indicated that our 1.5 million bpd assumption in our oil model might even be towards the low end of the most educated industry experts who think the impact might be closer to 2 and 3 million bpd of “effective” reduced global oil supply starting in about 18 months. Some of the question marks include: (1) how much “cheating” will there be?; (2) how many ships will invest in scrubbers, thereby enabling them to keep using high-sulfur fuel?; (3) will the regulations be rolled back and enforced if they drive oil prices too high? and (4) how many refineries will invest in the relevant upgrades to process sour barrels? Even with our conservative forecast, however, an effective supply cut of 1.5 million bpd will likely lead to 2020 being the cyclical peak for oil prices – and thus a slow year for demand growth. We believe the main winners will be those refiners that can boost production of distillates in line with the boosted demand for marine gas oil.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group