Best of the Week
Most Popular
1.Gold Price Crash Through Key Support, Crude Oil in Freefall - Clive_Maund
2.Marc Faber Warns Japan's Bond-Buying Program is a Ponzi Scheme - Bloomberg
3.Silver Price and Powerful Forces - DeviantInvestor
4.Stocks Bear Market Catastrophe as Stocks Flash Crash to New All Time Highs - Nadeem_Walayat
5.Marc Faber Warns Not to Hold Any Gold in the U.S. - GoldCore
6.U.S. Housing Market San Francisco at Critical Mass - Harry_Dent
7.Global Scramble For Silver - Coins “Hard To Get,” “Premiums Likely To Jump” - GoldCore
8.Major World Stock Market Indices Analysis: SPY, QQQ, DAX, FTSE, CAC, HSI - Michael_Noonan
9.Japan's kaput?! - Axel_Merk
10.Tesco Empire Strikes Back, £5 off £40 Discount Voucher Spend Explained, Exclusions Warning! - Nadeem_Walayat
Last 5 days
Crude Oil and Stock Market Setting The Stage For The Next Recession - 23rd Nov 14
This Publicly-Owned Bank Is Outperforming Wall Street - 23rd Nov 14
Who’s Ready For $30 Crude Oil Price? - 23rd Nov 14
Strategic, Methodological and Developmental Importance of Knowledge Consumption - 23rd Nov 14
Manipulated Stock Market Short Squeezes to Another All Time High - The China Syndrome - 23rd Nov 14
Gold Price 2015 - 22nd Nov 14
Stock Market Medium Term Top? - 22nd Nov 14
Is the Gold And Silver Golden Rule Broken? - 22nd Nov 14
Malaysia's Subsidy and Budget Deficit Conundrum - 22nd Nov 14
Investors Hated Gold at Precisely the Wrong Time: What About Now? - 22nd Nov 14
Gold and GLD ETF Selloff - 22nd Nov 14
Currency Wars, the Ruble and Keynes - 21st Nov 14
Stock Market Investor Sentiment in The Balance - 21st Nov 14
Two Biotech Stocks Set to Double on One Powerful Catalyst - 21st Nov 14
Swiss Gold Poll Likely Tighter Than Polls Suggest - 21st Nov 14
Gold's Volatility and Other Things to Watch - 21st Nov 14
Australia Stock Market and AUD Dollar Analysis (ASX200 and AUDUSD) - 21st Nov 14
New Algae Research May Have Uncovered an “Energy Forest” Under the Sea - 21st Nov 14
The Cultural and Political Consequences of Fiat Money - 20th Nov 14
United States Social Crisis - No One Told You When to Run, You Missed the Starting Gun! - 20th Nov 14
Euro-Zone Tooth Fairy Economics, Spain Needs to leave the Euro - 20th Nov 14
Ebola Threat Remains a Risk - New Deaths in Nebraska and New York - 20th Nov 14
Stock Market and the Jaws of Life or Death? - 20th Nov 14
Putin’s World: Why Russia’s Showdown with the West Will Worsen - 20th Nov 14
Making Money While The World Burns - 20th Nov 14
Why This "Quiet Zone" Is Now Tech Stocks Biggest Profit Sector - 20th Nov 14
My Favorite Stock McDonalds Just Got Kicked Off My “Buy” List - 19th Nov 14
European Economies in Perpetual State of Shock, What's Scarier Than Deflation? - 19th Nov 14
Breakfast with a Lord of War and Nuclear Weapons - 19th Nov 14
The U.S. Economy’s Ebb and Flow - 19th Nov 14
What You Need to Know Before Investing in Alibaba - 19th Nov 14
Forget About Crude Oil Price Testing 2009 Low - 19th Nov 14
What Blows Up First? Part 5: Shale Oil Junk Bonds - 19th Nov 14
Bitcoin Price Did We Just See an Important Slump? - 18th Nov 14
How to Profit From Oversold Crude Oil Price - 18th Nov 14
Stock Valuations Outrunning Profits Growth - And the Band Played On - 18th Nov 14
ECB Buy Gold Bullion? Japan's Monetary Policy Dubbed "Ponzi Scheme" - 18th Nov 14
Gold, Silver, Crude and S&P Ending Wedge Patterns - 18th Nov 14
How High Could USD/JPY Go? - 18th Nov 14
On Obama and the Nature of Failed Presidencies - 18th Nov 14
Globalism Free Trade Immigration Connection - 18th Nov 14
An Epiphany From Hell - Buy Gold and Silver - 18th Nov 14
Too Difficult to Get a U.S. Home Loan - 18th Nov 14
Has the Gold Bear Trap Been Set - 18th Nov 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Gold Report 2015

You Can Drill All You Want, Oil Prices Are Still Headed Higher

Commodities / Crude Oil Sep 20, 2012 - 06:31 AM GMT

By: Money_Morning

Commodities

Best Financial Markets Analysis ArticleDr. Kent Moors writes: Today I want to focus again on oil prices. It seems that some TV pundits have never heard (with apologies to Alexander Pope) that a little knowledge is a dangerous thing.

Some people on Wall Street believe that by scaring the individual investor they stand to make a greater profit for themselves.


Over the summer, there was a report issued by Credit Suisse that said that oil could hit $50 a barrel. We've also seen predictions on CNBC saying $40 a barrel. Others think that oil prices could fall even go further.

What I am telling you now is that these views do not reflect the actual market or the new reality we find ourselves in today.

A lot of this sentiment stems from the idea that we have now increased our supplies here in the United States. Some political candidates even said that they guaranteed "$2.50" per gallon gasoline if they were elected.

"Drill, baby, drill" has become something of a national catchphrase.

The problem is that prices are not just reflective of new supplies, either too much or too little. By focusing only on how much is there, these analysts provide a fundamentally distorted view of the oil market.

Yes, the rise of new sources has altered the picture. But so has the rise in demand globally and at a rate much faster than anticipated.

In fact, the impact of unconventional oil (like our huge sources of shale oil) is now projected to be less than expected, even with additional volume coming on line.

And one report issued last week reflects that fundamental view and explains why oil prices are set to rise, not fall in this age of expanded unconventional oil and gas.

The Fundamentals Are What Matter to Oil Prices
I want to introduce you to a company called Bernstein Research.

They are regarded as the top energy research company in the world by their institutional investors. They're in 40 countries. They win awards every year for having the best analysts in the sectors they cover.

And they are very successful in their forward focus because they emphasize the fundamentals.

Last week, Bernstein Research released a detailed report reflecting the position I have been holding for some time-oil prices are headed higher.

In the 180 pages, one of the best oil analysis teams in the business concludes oil prices will be rising to $158 on average for Brent in London, and about $153 for West Texas Intermediate (WTI) in New York before the end of the decade, with a concerted upward trajectory kicking in early next year.

And that's just the average price. Spikes will carry it much higher.

As an example, as I write this we are at more than $117 per barrel for Brent and more than $98 per barrel for WTI. Yet the annual averages for each are currently about $105 and $82.

The report also flatly dismisses the protracted effect some television pundits think is coming from shale oil. While it will have a much more pronounced result in North America, the unconventional will have a more subdued effect on prices elsewhere in the world.

The estimate is that the overall impact of the "new oil" will comprise only 3.2% of worldwide supply at the beginning of the next decade, with most of that being in the U.S. market.

Remember, this is a global market.

Global demand and availability determines price, with that price translated to the market by the dominant benchmarks - Brent and West Texas Intermediate (WTI).

This is not simply a question of how much supply is available. Three more fundamental factors influencing an upward price move.

Three Factors Pointing to Higher Oil Prices
First, demand continues to rise in those parts of the world most directly effecting price. Those areas, as I have noted many times before, are not North America or Western Europe. They are also markets in which unconventional oil will not have an effect for some time.

Second, the presence of shale oil does offset supply concerns in North America. But it also does so by increasing the overall cost of production. The market effect per barrel of shale oil extracted will still increase the price of the crude. The cost of producing that barrel and the associated to-market costs is known as the marginal price of oil.

In fact, Bernstein Research says that the average marginal cost of oil around the world today is $92 a barrel, and is set to rise because it is more expensive to lift, process, refine, and distribute these new sources of crude oil.

Finally, the pricing dynamic is also about the regionalization of supply for both crude and refined oil products. As we move toward 2015 and beyond, the demand curve will dictate pricing premiums for regions where imbalances of supply are present.

The prospect is there for new sources, but the costs being passed down the line are extraordinarily high.

Of course, it still makes sense to one way of looking at oil - the "simple is as simple does" approach.

Simply put, oil prices are on the rise, and one of the most reputable research firms in the world are backing up what you and I have known all along.

To learn more about Oil & Energy Investor, click here.

Source :http://moneymorning.com/2012/09/20/you-can-drill-all-you-want-oil-prices-are-still-headed-higher/

Money Morning/The Money Map Report

©2012 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

© 2005-2014 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

Free Report - Financial Markets 2014