Best of the Week
Most Popular
1. Best Cash ISA Savings Account for Soaring UK Inflation - February 2018 - Nadeem_Walayat
2.Gold Price Forecast 2018 - February Update - Nadeem_Walayat
3.Bitcoin Crypto Currencies Crash 2018, Are We Near the Bottom? - Nadeem_Walayat
4.Trump Bubble Bursts, Stock Market Panic Dow 1175 Point Crash Analysis - Nadeem_Walayat
5.Gold Corrects, Bitcoin Markets Crash, Whilst Stocks Plunge - Nadeem_Walayat
6.US Treasury Bonds: Fuse to Light the Bonfire - Jim_Willie_CB
7.Dow Falls 666 Points As Cryptocurrencies Crash And Krugman Emerges From His Van - Jeff_Berwick
8.Stock Market Roller Coaster Crash Ride Down to Dow Forecast 23,000 - Nadeem_Walayat
9.Trading the Shadows - Oil, Dollar, Stocks, Gold Trend Analysis - B.R. Hollister
10.Stock Market Analysis: Baying for Blood - Abalgorithm
Last 7 days
Stock Market Volatility Attributed to 'Shenanigans' - 24th Feb 18
Reintroducing The Concept Of Stock Market Investing Risk - 24th Feb 18
How Global Growth and Infrastructure are Driving Commodities - 24th Feb 18
Tips to Get Financing for a New Business - 24th Feb 18
Heavy Police Presence at Resumption of Sheffield Street Tree Fellings Protests - 24th Feb 18
Why You Should NOT Sub4Sub Free Youtube Subscribers - YTpals, Subpals, SubmeNow Test Results - 23rd Feb 18
One Belt, One Road, One Direction for Precious Metals - 23rd Feb 18
Gold’s Curious Sentiment - 23rd Feb 18
Relationship Between Crude Oil and U.S. Dollar in February 2018 - 23rd Feb 18
Why The Next Oil Boom Will Be Fueled By Blockchain - 23rd Feb 18
Gold Bull and Bear Markets - 23rd Feb 18
Why Recent Lows Are Crucial for US Dollar - 23rd Feb 18
Will Bitcoin be Larger Than NEO in 2018? - 23rd Feb 18
Stock Market SPX Probable Pop-n-drop - 22nd Feb 18
Stocks Fail to Hold Gains, But Still No Correction - 22nd Feb 18
Why We Should Buy Essay - 22nd Feb 18
The Latest US Debt Blow - 22nd Feb 18
6 Tips For Seamless Business Foreign Exchange - 22nd Feb 18
How to Anticipate Stock Market Trend Changes - 21st Feb 18
Gold Miners’ Rally? What Rally? Watch Out for More Fake Moves! - 21st Feb 18
5 Big Drivers of Higher Inflation Rates Ahead - 21st Feb 18
Goofy Indictments Divert Attention from Criminal Abuses at the FBI and DOJ - 21st Feb 18
Bitcoin or British Pound ‘Pretty Much Failed’ As Currency? - 21st Feb 18
Stock Market Waiting for the Fed - 21st Feb 18
National Identity Demands Restrictive Immigration - 21st Feb 18
Best Opportunities for Freelance Technical Writing Jobs - 21st Feb 18
4% US 10-year Treasury Note Yield Will Be a Floor Not a Ceiling - 20th Feb 18
Governments Are LYING about Their Gold Activities while Mining Companies Cower - 20th Feb 18
No Silver Lining Here - 20th Feb 18
Semi Conductor Stocks SEMI Bearish? - 20th Feb 18
The Prisoner Promised Land - 20th Feb 18
Best Car Dash Cam Review: Z-Edge S3 Dual Dash Cam - UNBOXING (1) - 20th Feb 18
How Inflation Reduces The Real Value Of Social Security Net Of Medicare Premiums - 19th Feb 18
Could Stellar Lumens be a Challenger to Bitcoin for International Payments? - 19th Feb 18
US-China Trade War Escalates As Further Measures Are Taken - 19th Feb 18
How To Trade Gold Stocks with Momentum - 19th Feb 18
Is a New Gold Bull Market on the Horizon? - 19th Feb 18
Stock Market Decision Point! - 19th Feb 18
An Inflation Indicator to Watch, Part 1 - 18th Feb 18
Get on Top Of Debt Before It Gets on Top of You - 18th Feb 18
Will the Stock Market Make a Double Bottom? - 18th Feb 18
5 Reasons Why Commodities Are the Investment Place to be in 2018 - 18th Feb 18
1 Week Later, Stock, Bond Market Risk Remains ‘On’ as 2 of 3 Amigos Ride On - 17th Feb 18
Crude Oil Prices: A Case of Dueling Narratives? - 17th Feb 18
Free 1000 Youtube Subscribers Services - YTpals, Subpals, SubmeNow Test - 17th Feb 18

Market Oracle FREE Newsletter

Urgent Stock Market Message

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

© 2005-2018 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