Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
The AI Mega-trend Stocks Investing - When to Sell? - 28th May 20
Trump vs. Biden: What’s at Stake for Precious Metals Investors? - 28th May 20
Stocks: What to Make of the Day-Trading Frenzy - 28th May 20
Why You’ll Never Get Another Stimulus Check - 28th May 20
Implications for Gold – 2007-9 Great Recession vs. 2020 Coronavirus Crisis - 28th May 20
Ray Dalio Suggests USA Is Entering A Period Of Economic Decline And New World Order - 28th May 20
Europe’s Coronavirus Pandemic Dilemma - 28th May 20
I Can't Pay My Payday Loans What Will Happen - 28th May 20
Predictive Modeling Suggests US Stock Markets 12% Over Valued - 27th May 20
Why Stocks Bear Market Rallies Are So Tricky - 27th May 20
Precious Metals Hit Resistance - 27th May 20
Crude Oil Cuts Get Another Saudi Boost as Oil Demand Begins to Show Signs of Life - 27th May 20
Where the Markets are heading after COVID-19? - 27th May 20
Silver Springboards Higher – What’s Next? - 26th May 20
Stock Market Key Resistance Breakout Is Where the Rubber Meets the Road - 26th May 20
5 Ways To Amp Up Your CFD Trading Today - 26th May 20
The Anatomy of a Gold Stock Bull Market - 26th May 20
Stock Market Critical Price Level Could Soon Prompt A Big Move - 25th May 20
Will Powell Decouple Gold from the Stock Market? - 25th May 20
How Muslims Celebrated EID in Lockdown Britain 2020 - UK - 25th May 20
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20
China’s ‘Two Sessions’ herald Rebound of Economy - 22nd May 20
Signs Of Long Term Devaluation US Real Estate - 22nd May 20
Reading the Tea Leaves of Gold’s Upcoming Move - 22nd May 20
Gold, Silver, Mining Stocks Teeter On The Brink Of A Breakout - 21st May 20
Another Bank Bailout Under Cover of a Virus - 21st May 20
Do No Credit Check Loans Online Instant Approval Options Actually Exist? - 21st May 20
An Eye-Opening Perspective: Emerging Markets and Epidemics - 21st May 20
US Housing Market Covid-19 Crisis - 21st May 20
The Coronavirus Just Hit the “Fast-Forward” Button on These Three Industries - 21st May 20
AMD Zen 3 Ryzen 9 4950x Intel Destroying 24 core 48 thread Processor? - 21st May 20
Dow Stock Market Trend Analysis and Forecast - 20th May 20
The Credit Markets Gave Their Nod to the S&P 500 Upswing - 20th May 20
Where to get proper HGH treatment in USA - 20th May 20
Silver Is Ensured A Prosperous 2020 Thanks To The Fed - 20th May 20
It’s Not Only Palladium That You Better Listen To - 20th May 20
DJIA Stock Market Technical Trend Analysis - 19th May 20
US Real Estate Showing Signs Of Covid19 Collateral Damage - 19th May 20
Gold Stocks Fundamental Indicators - 19th May 20
Why This Wave is Usually a Market Downturn's Most Wicked - 19th May 20
Gold Mining Stocks Flip from Losses to 5x Leveraged Gains! - 19th May 20
Silver Price Begins To Accelerate Higher Faster Than Gold - 19th May 20
Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' - 19th May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

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