Oil Prices - Jan 23
Posted: Sat Jan 23, 2016 12:21 pm
I believe oil prices will firm up this year. I write for OilPrice.com and so does Art Berman. Art is a super sharp engineer who does his homework. Below are his thoughts on where oil prices are heading.
I highly recommend you all read this carefully: http://oilprice.com/Energy/Oil-Prices/O ... lieve.html
I tend to agree with the Oil & Gas Journal, who believes the global oil markets will balance by the 3rd quarter. See Figure 8 in the article attached.
I believe Non-OPEC oil production is falling much faster than EIA and IEA are projecting. I follow a lot of oil companies and they are slashing so many projects that I see no way that oil production is not going to drop off of a cliff this year. If fact, I think we could see a world "short oil" early in 2017.
What are Other Analysts Saying?
The media seems to reinforce the gloom & doom of an oversupplied oil market on a daily basis. In our opinion, the speculative traders (who now control oil prices) are paying too much attention to the current situation and not enough attention to clear signs of tightening supply/demand fundamentals. Here are what some of the top energy sector analysts are saying.
Raymond James & Associates in their January 4, 2015 Energy Industry Brief said, “As before, “the solution to low oil prices is low oil prices.” While it may take a couple of quarters to play out, we see clear evidence that global oil demand is already responding (to low oil prices), and global oil supply is poised to slow enough to leave the market substantially undersupplied by the end of 2016, lasting through 2018.” Raymond James has increased their 4th quarter forecast for WTI oil to $65.00 per barrel.
On January 12, 2016, Cornerstone Analytics, a firm which tracks global oil inventories carefully, said, “We see no near-term support for oil prices, but that changes in the 2nd quarter when we expect to see contra-seasonal draws from OECD inventories.”
Tudor Pickering Holt & Co., an energy investment bank headquartered in Houston, reaffirmed their forecast (based on tightening supply & demand) that West Texas Intermediate (WTI) should increase to $50/bbl by the end of June and that they still expect WTI to reach $80/bbl by year-end.
Goldman Sachs also seems to be changing their view. In a report issued January 15, 2016 they lead with this rather bold statement: “Oil will turn into a new bull market before the year is out as the price rout shuts down sufficient production to erode the global glut.”
“The crash in U.S. oil futures -- which sank back below $30 a barrel to a new 12-year low -- will send the nation’s shale-oil boom spinning into reverse in the second half of the year”, the bank said in a report. As U.S. production slumps, global oil markets will tip from surplus to deficit, Goldman predicts.
“The key theme for 2016 will be real fundamental adjustments that can re-balance markets to create the birth of a new bull market, which we still see happening in late 2016,” analysts Jeff Currie and Damien Courvalin wrote.
The market will signal it’s ready to rally when the forward price curve, which currently shows a steep discount on immediate commodity supplies, starts to flatten out, the analysts said. The end of that discount would demonstrate that there’s enough demand to whittle down oil that’s piled up in storage tanks, they said.
“A flat (oil futures) curve near cash costs is historically the buy signal for passive investors and we believe the current bear market will end the same way,” Currie and Courvalin said. “Such a signal is what will shift us to being bullish on commodities.”
Goldman, which has warned that the oil market might not re-balance unless prices fall to $20 a barrel, forcing production cuts among shale operators, said this remains a possibility. Still, the $20 scenario remains an outlier rather than their most-likely case, and would only be realized if oil storage space runs out. As that’s unlikely, the bank said it’s sticking with its forecast of $40 a barrel for the first half.
I highly recommend you all read this carefully: http://oilprice.com/Energy/Oil-Prices/O ... lieve.html
I tend to agree with the Oil & Gas Journal, who believes the global oil markets will balance by the 3rd quarter. See Figure 8 in the article attached.
I believe Non-OPEC oil production is falling much faster than EIA and IEA are projecting. I follow a lot of oil companies and they are slashing so many projects that I see no way that oil production is not going to drop off of a cliff this year. If fact, I think we could see a world "short oil" early in 2017.
What are Other Analysts Saying?
The media seems to reinforce the gloom & doom of an oversupplied oil market on a daily basis. In our opinion, the speculative traders (who now control oil prices) are paying too much attention to the current situation and not enough attention to clear signs of tightening supply/demand fundamentals. Here are what some of the top energy sector analysts are saying.
Raymond James & Associates in their January 4, 2015 Energy Industry Brief said, “As before, “the solution to low oil prices is low oil prices.” While it may take a couple of quarters to play out, we see clear evidence that global oil demand is already responding (to low oil prices), and global oil supply is poised to slow enough to leave the market substantially undersupplied by the end of 2016, lasting through 2018.” Raymond James has increased their 4th quarter forecast for WTI oil to $65.00 per barrel.
On January 12, 2016, Cornerstone Analytics, a firm which tracks global oil inventories carefully, said, “We see no near-term support for oil prices, but that changes in the 2nd quarter when we expect to see contra-seasonal draws from OECD inventories.”
Tudor Pickering Holt & Co., an energy investment bank headquartered in Houston, reaffirmed their forecast (based on tightening supply & demand) that West Texas Intermediate (WTI) should increase to $50/bbl by the end of June and that they still expect WTI to reach $80/bbl by year-end.
Goldman Sachs also seems to be changing their view. In a report issued January 15, 2016 they lead with this rather bold statement: “Oil will turn into a new bull market before the year is out as the price rout shuts down sufficient production to erode the global glut.”
“The crash in U.S. oil futures -- which sank back below $30 a barrel to a new 12-year low -- will send the nation’s shale-oil boom spinning into reverse in the second half of the year”, the bank said in a report. As U.S. production slumps, global oil markets will tip from surplus to deficit, Goldman predicts.
“The key theme for 2016 will be real fundamental adjustments that can re-balance markets to create the birth of a new bull market, which we still see happening in late 2016,” analysts Jeff Currie and Damien Courvalin wrote.
The market will signal it’s ready to rally when the forward price curve, which currently shows a steep discount on immediate commodity supplies, starts to flatten out, the analysts said. The end of that discount would demonstrate that there’s enough demand to whittle down oil that’s piled up in storage tanks, they said.
“A flat (oil futures) curve near cash costs is historically the buy signal for passive investors and we believe the current bear market will end the same way,” Currie and Courvalin said. “Such a signal is what will shift us to being bullish on commodities.”
Goldman, which has warned that the oil market might not re-balance unless prices fall to $20 a barrel, forcing production cuts among shale operators, said this remains a possibility. Still, the $20 scenario remains an outlier rather than their most-likely case, and would only be realized if oil storage space runs out. As that’s unlikely, the bank said it’s sticking with its forecast of $40 a barrel for the first half.