Oil and Gas News

Six reasons why oil prices reached new 2016 highsBy STEVE AUSTIN for OIL-PRICE.NET, 2016/05/11

Crude oil was at a 13-year record $25 low in mid-January 2016 and has soared more than 70 per cent since. The battle is on again. We are talking about the mighty forces whipping up the oil prices. How does the investor work out where the oil price will go? Ultimately, you have to make your own forecasts, at least on the general, long term direction of oil prices – short term movements tend to be driven by news stores on the day. In particular, you need to take into consideration the following dimensions:

Supply and demand: if producers are outstripping demand, prices will fall and if there is a shortage of oil, prices will rise.
Political events: a war, rebellion or political uncertainty affecting major oil producers may prevent those countries from producing and selling, reducing the supply of oil.
Economic growth: if demand is expected to grow faster than production, excess supply will be soaked up and shortages will arise.
Related markets: the futures market, availability of transport, currency rates and the cost and of extraction equipment and labor can all affect the price of oil.

We took these factors into consideration when assessing six reasons for the recent rise in crude oil prices. Will this rally continue, or has the price peaked?

Weaker dollar raises oil prices

The market price of crude oil is valued in US dollars. Therefore, when the oil price falls or rises, you also need to look at the value of the dollar against a range of currencies. If an oil refinery in China needs to buy crude oil, it has to convert its income, derived in the local currency, Yuan into dollars. An oil producer, such as Saudi Arabia, needs to convert its income into the local currency, the Riyal in order to cover its costs. Large buyers go direct to suppliers in order to get a good price for their oil. China is particularly adept at this practice and has written up agreements to pay in its own currency for crude oil, rather than in dollars. So, if the value of the dollar falls by 10 per cent, the contract price of those agreement rises by 10 per cent, even though it hasn’t changed at all in the contract currency.

In fact, this phenomenon is notable in all commodities priced in dollars – steel, copper, gold, and silver have all experienced price rises in 2016. This is not because there is a shortage in those commodities; it is just because the currency in which they are priced has fallen. Continue reading →

barrell of oilThe price of West Texas Intermediate (WTI) finally found the bottom in February for this oil price cycle. It won’t be straight up from here, but with global supply & demand heading toward a balance by yearend, we should see higher oil prices.

Later this week, the International Energy Agency (IEA) will publish their monthly Oil Market Report. In their April report, IEA forecast an increase in demand for hydrocarbon based liquid fuels (primarily made from crude oil) of 1,800,000 million barrels per day from the first quarter to the third quarter of this year. If that happens, the global oil market will be back in balance.

On April 25th, Terry Starling from Raymond James presented his firm’s official oil price forecast for 2016 and 2017. Like IEA, Raymond James predicts a significant tightening of the oil market this summer. They believe WTI will reach $50/bbl. by the end of June and spike to $70/bbl. in late 3rd quarter.

For over a year, crude oil prices under $60/bbl. are unsustainable. We’ve seen an incredible decline in drilling activity that is going to result in an acceleration of Non-OPEC oil production declines that began a year ago. The number of rigs operating in North America is now at the lowest level since Baker Hughes (BHI) started tracking it over 70 years ago.

Keep in mind that the United States and Canada are not the only two countries where oil production has rolled over. Oil production in Venezuela was down 188,000 barrels per day year-over-year in the first quarter due to natural declines and an economic crisis (caused by low oil prices). Latin America on the whole lost 441,000 barrels per day in the first quarter. We’ve seen many deepwater projects cancelled, enough to all but guarantee an oil shortage in 2018.

 

There’s a ‘strong case’ for $120 oil in 2018

Today, I’m going to try and tackle the reasoning for my ‘wild’ predictions for oil reaching triple digits by the end of 2017. While I am nearly alone in these forecasts, they are not just pulled out of space, but with deep regard for the fundamental supply/demand picture that everyone mostly agrees upon, combined with what I think is a deeper insight into the likely trajectory of oil company leverage, financing and the role of financial oil derivatives.

Despite the technical nature of this discussion, I think I can make a strong case for $120 oil in 2018 using only two charts of my own making – one charting global demand, which is more universally agreed upon, and then an overlay of global production, which is more open to prediction.

First, demand: Almost all analysts including the EIA and IEA agree that demand continues to grow at a steady pace throughout the rest of the decade, and even a minor economic downturn will only slow the pace of growth (green line), but not upend the upward trend line of demand. Sorry to those environmentalists who pray for an end to carbon use growth in the next decade – virtually no one currently believes it will happen.

supply vs demand

Continue reading…

 

Mar 29, 2016

 – President Agave Investment Partners and Cuentista Productions

I follow oil pretty closely given our exposure.  As such, I get frustrated with many press and news show accounts of the commodity.  It gets worse when the pundits and writers should know better.  Frequently inexact terminology leads to misconceptions and sometimes I see outright falsehoods that completely distort the truth.  As a former oil analyst and professional energy investor, I feel compelled to take those to task.  As a realist, I see that all markets require a difference of opinion and all investors talk their “book”.  For this reason, when Jeff Currie at Goldman Sachs Commodities Group gets on CNBC and opines about future price movements, I give little notice.  Jeff is posturing for his customers’ and GSs’ positions.  Jeff can spin the story either way and chooses his statistics accordingly…That’s what he is paid very well to do.  

Yesterday (March 28, 2016), I heard Dennis Gartman of the Gartman Letter, a trader and investor that I respect and have learned much from, spout an outright falsehood on CNBC.  Everyone can have a bad day, but I’ve been hearing various versions of this for months.  Dennis said in essence that oil prices could not rise very much because of “all the capped wells that could be brought on line very rapidly” He predicted no more than $42/bbl this year.  He estimated that at current strip pricing, you could lock in $45/bbl in 12 months, making large numbers of these “capped” wells profitable. The implication being that at current prices, the market would be rapidly flooded with new oil. Continue reading →

Oil prices hit 2016 highsNEW YORK | By Barani Krishnan

NEW YORK Oil prices hit 2016 highs on Thursday, with U.S. crude surging 5 percent to pierce the $40 barrier, on optimism that major producers will strike an output freeze deal next month amid rising crude exports and gasoline demand in the United States.

A weaker dollar .DXY after a Federal Reserve policy decision on Wednesday that indicated two U.S. rate hikes this year instead of four also drew oil buyers using currencies such as the euro EUR=. [FRX]

OPEC kingpin Saudi Arabia and non-OPEC producers led by Russia will meet on April 17 in the Qatar capital Doha, aiming for the first global supply deal in 15 years.

“The remote possibility that a coordinated supply control effort comes from this meeting, assuming it even happens, has put market bears on the defensive,” said Pete Donovan, broker with Liquidity Energy in New York.

Oil prices have surged more than 50 percent from 12-year lows since the Organization of the Petroleum Exporting Countries floated the idea of a production freeze, boosting Brent up from around $27 a barrel and U.S. crude from around $26.

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