Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21
Covid and Democrat Blue Wave Beats Gold - 15th Jan 21
On Regime Change, Reputations, the Markets, and Gold and Silver - 15th Jan 21
US Coronavirus Pandemic Final Catastrophe 2021 - 15th Jan 21
The World’s Next Great Onshore Oil Discovery Could Be Here - 15th Jan 21
UK Coronavirus Final Pandemic Catastrophe 2021 - 14th Jan 21
Here's Why Blind Contrarianism Investing Failed in 2020 - 14th Jan 21
US Yield Curve Relentlessly Steepens, Whilst Gold Price Builds a Handle - 14th Jan 21
NEW UK MOT Extensions or has my Car Plate Been Cloned? - 14th Jan 21
How to Save Money While Decorating Your First House - 14th Jan 21
Car Number Plate Cloned Detective Work - PY16 JXV - 14th Jan 21
Big Oil Missed This, Now It Could Be Worth Billions - 14th Jan 21
Are you a Forex trader who needs a bank account? We have the solution! - 14th Jan 21
Finetero Review – Accurate and Efficient Stock Trading Services? - 14th Jan 21
Gold Price Big Picture Trend Forecast 2021 - 13th Jan 21
Are Covid Lockdowns Bullish or Bearish for Stocks? FTSE 100 in Focus - 13th Jan 21
CONgress "Insurrection" Is Just the Latest False Flag Event from the Globalists - 13th Jan 21
Reflation Trade Heating Up - 13th Jan 21
The Most Important Oil Find Of The Next Decade Could Be Here - 13th Jan 21
Work From Home £10,000 Office Tour – Workspace + Desk Setup 2021 Top Tips - 12th Jan 21
Collect a Bitcoin Dividend Without Owning the King of Cryptos - 12th Jan 21
The BAN Hotlist trade setups show incredible success at the start of 2021, learn how you can too! - 12th Jan 21
Stocks, Bitcoin, Gold – How Much Are They Worth? - 12th Jan 21
SPX Short-term Top Imminent - 12th Jan 21
Is This The Most Exciting Oil Play Of 2021? - 12th Jan 21
Why 2021 Will Be the Year Self-Driving Cars Go Mainstream - 11th Jan 21
Gold Began 2021 With a Bang, Only to Plunge - 11th Jan 21
How to Test Your GPU Temperatures - Running Too Hot - GTX 1650 - Overclockers UK - 11th Jan 21
Life Lesson - The Early Bird Catches the Worm - 11th Jan 21
Precious Metals rally early in 2021 - 11th Jan 21
The Most Exciting Oil Stock For 2021 - 11th Jan 21
Financial Market Forecasts 2021: Navigation in Uncharted Waters - 10th Jan 21
An Urgent Message to All Conservatives, Right-Wingers and Patriots - 10th Jan 21
Despite Signs to the Contrary, Gold Price at or Near Top - 10th Jan 21 -
Ultimate Guide On The 6 Basic Types Of Index Funds - 10th Jan 21
Getting Vaccinated at TESCO - Covid-19 Vaccinations at UK Supermarket Pharmacies and Chemists - 10th Jan 21
Cheers for the 2021 Stock Market and These "Great Expectations" - 9th Jan 21
How to Plan Your Child With Better Education - 9th Jan 21
How To Find The Best Casino - 9th Jan 21
Gold Is Still a Bargain Buy - 8th Jan 20
Gold Price Set to Soar as Hyperinflation Looms - 8th Jan 21
Have Big Dreams? Here's How to Pay for Them - 8th Jan 21
Will the Fed Support Gold Prices in 2021? - 8th Jan 21
Stocks trading strategies for beginners - 8th Jan 21
Who is Buying and Selling Stocks in 2021 - 8th Jan 21
Clap for NHS Heroes 2021 as Incompetent Government Loses Control of Virus Again! - 8th Jan 21
Ultimate Gaming and Home Working PC System Build 2021 - 5950X, RTX 3080, Asus MB - Scan Computers UK - 7th Jan 21
Inflation the bug-bear looking forward through 2021 - 7th Jan 21
ESG ETF Investing Flows Drive Clean Energy to Fresh Highs - 7th Jan 21
5 Financial Market Surprises in 2021 - 7th Jan 21
Time to ‘Reset’ Your Investment Portfolio in 2021? - 7th Jan 21
Bitcoin Price Collapses almost 20% at the start 2021 - 7th Jan 21
Fed Taper Nervous Breakdown - 6th Jan 21
What Will the U.S. Dollar Ring in for 2021? - 6th Jan 21
Stock market frenzy- Ride the bandwagon but be sure to take along some gold coins - 6th Jan 21
Overclockers UK Custom Build Gaming System Review Heat Test and Final Conclusion - 6th Jan 21
Precious Metals Resuming Bull Market, Gold, Silver, GDX Trend Forecasts 2021 - 5th Jan 21
Trump’s Iran-COVID-Gate Anniversary  - 5th Jan 21
2021 May Be A Good Year For The Cannabis / Marijuana Sector - 5th Jan 21
Stock Market Approaching an Important Target - 5th Jan 21
Consumer Prices Are Not Reflecting Higher Inflation; Neither Is The CRB - 5th Jan 21
NEW UK Coronavirus PANIC FULL Lockdown Imminent, All Schools to Close! GCSE Exams Cancelled! - 4th Jan 21
The Year the World Fell Down the Rabbit Hole - 4th Jan 21
A Year Like No Other for Precious Metals… and Everything Else - 4th Jan 21
The Stocks Bull Market is Only Half Completed - 4th Jan 21
An In- Depth Look At Gold Price Trend - 4th Jan 21
Building America Back After a Dark Covid Winter - 4th Jan 21
America's Dark Covid Winter Ahead - 4th Jan 21
Buy a Landrover Discovery Sport in 2021? 3 Year Driving Review - 3rd Jan 21
Stock Market Major Peak in Early April 2021 - 3rd Jan 21
Travel and Holidays 2021 - Flight Knight Cabin Bag Review - 3rd Jan 21
�� Happy New Year 2021 Fireworks and Drone Light Show from London and Sheffied - BBC�� - 2nd Jan 2
The Next IMMINENT Global Catastrophe After Coronavirus - 1st Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Citi Sees $20 Crude Oil Prices - Here’s Why They’re Wrong

Commodities / Crude Oil Feb 11, 2015 - 05:02 AM GMT

By: Money_Morning

Commodities

Dr. Kent Moors writes: Despite a 20% jump in oil prices, some pundits continue to predict more pain.

In fact, just yesterday, Citigroup analyst Ed Morse came out with his most bearish forecast yet.

According to Morse, oil prices could fall another 60% to $20 a barrel. As for the recent rebound, Morse thinks it looks more like a “head-fake” than a sustainable turning point.


The market, of course, promptly reacted to Morse’s latest missive: oil prices continued to climb.

Nonetheless, that hasn’t stopped similar calls from others pushing their own doom-and-gloom forecasts.

There’s just one problem with all of this bearish analysis. And it’s a big one…

Oil Prices Have Already Begun to Stabilize

As I’ve previously discussed, the nearly 60% plunge in oil prices resulted in an abnormally oversold market, driven largely by the shorts. And without an actual pronounced decline on the demand side, there is very little likelihood of a price “Armageddon” happening anytime soon.

In fact, the oil picture has already begun to stabilize.

Now admittedly, absent a major geopolitical crisis, we are not going back to triple-digit oil prices anytime soon.

But the trajectory now clearly indicates a new medium-term floor in the mid $50s in New York and about $60 in London. By the fourth quarter of this year, oil prices will likely trade even higher, somewhere in the $70s.

Fueled by the onslaught of huge reserves in U.S. unconventional (shale and tight) oil, the oil picture is rapidly changing. Scarcity has suddenly been replaced with abundance.

Today, we’re facing a supply-side squeeze that will continue to influence oil prices – especially as the “shale revolution” goes global.

As for demand, it continues to climb globally – where the actual pricing dynamics take place. Just yesterday, OPEC revised its near-term demand projections higher, while cutting expected production from non-cartel nations. According to the cartel, demand for OPEC oil will average 29.21 million barrels per day (bpd) in 2015, up 430,000 bpd from its previous forecast.

OPEC determines its monthly production quota by estimating worldwide demand, then deducting non-OPEC production, resulting in what is referred to as “the call on OPEC.”

But as I noted last week, this long time market barometer is undergoing a significant revision, and it’s not in OPEC’s favor. Now U.S. production is determining the price. Or as Morse puts it, “the call on OPEC” has been replaced by “the call on shale.”

Now, the Paris-based International Energy Agency (IEA) expects global growth in oil demand to accelerate to 1.13 million bpd in 2016 from 910,000 bpd in 2015. Some of this is the simple reaction to lower prices – people use more oil when it costs less, especially in developing parts of the world where the use of diesel and other oil products is needed to generate essential electricity.

And there is another factor these “sky is falling” soothsayers fail to recognize. Despite a price decline of nearly 60% (most of that coming in the last quarter of 2014), we still ended up with the highest daily demand figure in history.

What makes this price decline different from all the others is the cause. Despite increasing global demand, the supply available to meet it has been rising even faster. That has put the brakes on the normal spikes in price that would result from any perceived interruption of the oil flow from world events or a rise in demand.

The Rig Count Falls As the Market “Self-Corrects”

Of course, the ability to accurately estimate the available supply has become the mantra of the profession. However, two fundamental mistakes are being made in the process.

Both arise from trying to use traditional yardsticks to a measure a “non-traditional” market.

First, the talking heads have been incessantly harping on shale and tight oil reserves available for uplift. However, just because reserves are extractable does not mean they will be produced. Because this potential has recently emerged, shale reserves have created an overhang on the market, and the cost-side triggers required to cut production are still unknown.

Nonetheless, the reaction to the price decline in the U.S. has been pronounced. The rig count has fallen dramatically to levels not witnessed in over a decade. In addition, operating companies are mothballing more expensive projects and trimming capital expenses.

Yet the doomsayers respond that there is still considerable volume available from ongoing existing projects. That is true. But, as usual, they miss the governing factor. The continuing volume from existing projects is already factored into a market where demand is not collapsing.

As for the stockpiles at places like Cushing, OK, these surpluses have been weighing on the pricing spread between WTI and Brent for some time now. But they are hardly a major factor moving forward.

New sections of the Keystone Pipeline system (located within the U.S. and not needing approval) are already draining oil from Cushing to the Gulf Coast refineries. What’s more, the decisions to reverse the flow in other pipelines – away from Cushing to the coast – are doing the same.

That makes the concern over an expanding glut at Cushing completely unwarranted, especially in an environment where domestic production is about to be reduced.

And what is underway among American producers is already taking place in Russia – the other primary non-OPEC producer. In Moscow, a central budget dependent on much higher oil prices has prompted a move to offset costs by delaying projects and reducing production.

That leaves the second overarching concern. This morning, the IEA reported that it may take some time to rebalance the oil market. Some pundits are already making bearish waves on the IEA statement, as much to offer an enticement to the next short play on oil as anything else.

Here’s the problem. We don’t need a perfectly balanced oil market, never have. That’s what trading arbitrage is all about, as future contracts expire and collide with the actual consignments of oil.

So long as there is a trading range, the system works quite nicely. According to just about any matrix, the market has not been balanced for much of the last decade. There are pricing changes in both directions, but the lack of a textbook balance has no appreciable impact.

It’s just another red herring.

Yes, this is a “brave new world” of oil. Yes, the factors colliding are operating in new ways. But it’s still the trade in oil that determines the price.

The sky is simply not falling… and we are going to continue to see fantastic profit-making opportunities in the months ahead.

Source :http://oilandenergyinvestor.com/2015/02/citi-sees-20-oil-prices-heres-theyre-wrong/

Money Morning/The Money Map Report

©2014 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules