Best of the Week
Most Popular
1.Crude Oil Price Trend Forecast 2016 Update - Nadeem_Walayat
2.Will Deutsche Bank Crash The Global Stock Market? - Clif_Droke
3.Gold Price In Excess Of $8000 While US Dollar Collapses - Hubert_Moolman
4.BrExit UK Economic Collapse Evaporates, GDP Forecasts for 2016 and 2017 - Nadeem_Walayat
5.Gold Stocks Massive Price Correction - Zeal_LLC
6.Stock Market Predicts Donald Trump Victory - Austin_Galt
7.Next Financial Crisis Will be Far Worse than 2008/09 - Chris_Vermeulen
8.The Gold To Housing Ratio As A Valuation Indicator - Dan_Amerman
9.GDXJ Gold Stocks - A Diamond in the Rough - Rambus_Chartology
10.Gold Boom! End Game Nears As Central Banks Buying Up Gold Mining Companies! - Jeff_Berwick
Last 7 days
This Commodity Has Perked Up its Investors' Portfolios - 27th Sept 16
Charting the Continuing Gold Market Correction - 27th Sept 16
Stock Market Crash and Recession Indicator Warning: Extreme Danger Ahead - 27th Sept 16
Financial Markets and FX Setups 27th Sept - 27th Sept 16
Crude Oil, Forex and Stock Market Trend Forecasts - 27th Sept 16
Why There is Trump - 27th Sept 16
Save Up to 70% in Shopping Expenses for Daily Items - 27th Sept 16
Gold’s Moving Averages and Long-Term Outlook - 26th Sept 16
September Stock Market - The Not So Silent Demise of Deutsche Bank - 26th Sept 16
SPX sell signal confirmed - 26th Sept 16
SPX is testing the next level of support - 26th Sept 16
Outrageously Entertaining US Presidential Campaign Final Stages - What Happens Next? - 26th Sept 16
BoJ, FOMC and Where To Now? - 26th Sept 16
Stock Market New All Time Highs Next - 26th Sept 16
Why Trump Will Win US General Election 2016 Prediction Forecast - 26th Sept 16
Martial Law Rolls Out Across the US As Jubilee Nears - 26th Sept 16
Stock Market More Correction Likely - 25th Sept 16
US Presidential Election Forecast 2016 - Trump Riding BrExit Wave into the White House - 25th Sept 16
US Economy GDP Growth Estimates in Free-Fall: FRBNY Nowcast 2.26% Q3, 1.22% Q4 - 24th Sept 16
Gold and Gold Stocks Corrective Action Continues Despite Dovish Federal Reserve - 24th Sept 16
Global Bonds: Why Our Analyst Says Things Just Got "Monumental" - 24th Sept 16
Where Did All the Money Go? - 23rd Sept 16
Pension Shortfalls Could Be 4X To 7X Greater Than Reported - 23rd Sept 16
Gold Unleashed by the Fed - 23rd Sept 16
Gold around U.S Presidential Elections - 23rd Sept 16
Here’s Why Eastern Europe Is Doomed - 23rd Sept 16
Nasdaq NDX 100 Big Cap Tech Breakout ? - 23rd Sept 16
The Implications of the Italian Banking Crisis Could Be Disastrous - 22nd Sept 16
TwinLakes Theme Park Summer Super 6 FREE Return Entry for Real? - 21st Sept 16
Has the Silver Bullet Run Out of Fire Power? - 21st Sept 16
Frack Sand: The Unsung Hero Of The OPEC Oil War - 21st Sept 16
What’s Happening With Gold? - 21st Sept 16
Gold vs. Stocks and Commodities, Pre-FOMC - 20th Sept 16
BrExit UK Inflation CPI, RPI Forecast 2016, 2017 - 20th Sept 16
European banks may be more important than the Fed this week - 20th Sept 16
Gold, Silver, Stocks and Bonds Grand Ascension or Great Collapse? - 20th Sept 16
Mass Psychology in Action; Instead of Selling Gilead it is Time to Take a Closer Look - 20th Sept 16
Hillary - Finally Well Deserved Recognition for Deplorables - 20th Sept 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Power of the Wave Principle

Will Crude Oil Prices Rebound in 2016?

Commodities / Crude Oil Jan 23, 2016 - 05:07 PM GMT

By: OilPrice_Com

Commodities

Oilprice.com recently spoke with Carl Larry, Director of Oil and Gas at Frost & Sullivan, a consultancy that conducts research on oil and gas markets, to get his thoughts on the state of oil in 2016.

Oilprice.com: I saw that you were on Bloomberg in December, and you said that you thought oil would go to the low $30s per barrel, which was a good call at the time, before OPEC would sort of relent. Do you see any chance that OPEC can actually coordinate any production cuts?


Carl Larry: No, you know, at this point I think that there is something to consider...that OPEC up until now most people had thought that the Saudis and the rest of OPEC were really pushing hard to slowdown or stop altogether shale production in the U.S. But what it seems now is that they are really fracturing OPEC, and in some ways almost undermining their own members.

So with oil prices down here and with production staying so high, it becomes a point where it's unsustainable for countries like a Nigeria or a Venezuela to continue on. I mean, other countries within OPEC are still struggling with these oil prices, including Saudi Arabia. But you can see that going forward that the more that the pressure stays on those countries that are outside of the Middle East, it's possible that they are the ones that are going to have to blink first. They are the ones that are going to have to cut back production.

OP: So countries like Venezuela or Nigeria...do you actually see them shutting in production?

CL: Yeah, I think so. I think that it's possible. It's a theory, but it's possible that when Shell pulled out of the U.S. Arctic a few months ago, they said that they wanted to cut costs. But I think that they were just shifting some of the budget that was there to uphold and maintain production in areas like West Africa, like Nigeria.

So, you know, it's going to come to a point where there is just going to be no real economical benefit to any kind of production staying at any kind of level in those countries. And once they come off, that's going to obviously support oil prices, but it might have a lingering effect as oil production will take longer to get back online again.

OP: Countries like Venezuela and Nigeria...their budget situations are much more precarious, as you said, than the Saudi Arabia's of the world. What would you see as sort of a worst-case scenario? What would real trouble look like in Venezuela? Is that like a debt default, or what?

CL: A debt default would definitely be something that comes up and it's not that something that's too far out of reach. There are a lot of oil companies that have said recently that they are cutting back their credit with Venezuela. They are not shipping as much gasoline or blending products to Venezuela in fear that they won't get paid and actually not getting paid up to date. So as you see those problems build up, you can tell that this is going to happen. This could happen sooner than later.

It is not unlike situations we have seen around 2009 when banks that were dealing in commodities were second guessed because of their credit situations. So when look at a country like Venezuela and compare it to Morgan Stanley in 2009 when people were pulling credit quickly, you can see that Venezuela is definitely at risk here, possibly within months.

OP: OK. So recently the narrative around oil prices has sort of shifted a little bit and the emphasis now has been more on the strength of the U.S. dollar. How do you see this affecting oil prices in 2016? Is there more room for the dollar to strengthen? And do you see the Fed sticking to its plan of incrementally raising rates?

CL: I think the dollar continues to be stronger. I think the Fed does have enough to say that they can continue to raise rates. There is not a lot of downside there. I don't know if they will be able to keep to their schedule for this year, but even with two or three [rate increases], that will make a difference in the U.S. dollar.

And again, it's going to hurt other countries that are producing oil, especially countries that are trying to maintain...you know, trying to buy new equipment, trying to maintain old equipment that mostly comes from the U.S. That's going to hurt their purchasing power for those materials, those commodities, and that equipment.

OP: The IEA just came out with their monthly report this morning. The headline-grabbing sentence that they had in there was that oil markets might "drown" in over-supply due to rising inventories. Do you see storage levels, rising storage levels, being a big problem in 2016?

CL: I do. I think that there is definitely concern about storage outside of the U.S. as storage outside of the U.S. is limited. Most countries that do have storage are using it mainly for reserves outside of the [Amsterdam-Rotterdam-Antwerp] area in Europe. So there is a lack of storage and it is something that a lot of companies are looking to build out, and even countries are looking to build out, but that's not going to be solvable until 2017 anyways. But that could be an issue. Even though that oil has value, it has no value unless it can go somewhere, whether that's to a consumer or storage. Neither is looking good right now.

OP: Does that open up the possibility of floating storage?

CL: It does open up the possibility of floating storage. We have seen Iran do it. Now that Iran is going to lighten those loads and hopefully dismiss those tankers, there are going to be a few extra tankers on the market, rather than just thinking of it as a lot more crude on the market. So that's definitely a possibility. I think the U.S., though, is still in a position where if they wanted to increase their storage we could see a lot of that open up by decreasing our imports, which is still a possibility.

OP: The IEA sounded pretty downbeat about the global economy in its report and the IMF just downgraded its growth target for the global economy. Do you see big downside risk to oil prices from a faltering economy? You see turmoil in China's stock market...is that a big threat?

CL: You know, it is. And it's really important to look at it that way. But we have to look at it in a Donald Trump-sort of way: There's us, and there's them. The U.S. is not even at 2 percent [GDP growth]. It is running record levels of crude oil the last two years consecutively...new records made each year. So our demand here is still good. It is going to grow, it's going to continue to as long as we stay at that 2 percent growth.

When you talk about global growth, that is detrimental. That is shaky, at best. That is where there is a real oil glut. If the China's, the Europe's, the Latin America's, and the Asia's cannot keep up, and they see declines, you are going to have much bigger oversupply through 2016, and that will be a big problem.

OP: The dramatic cutback in spending plans on behalf of the oil industry worldwide...Do you see that setting us up for a price spike? Or are we still just so oversupplied that that won't matter for quite a while?

CL: I think that if there's a cutback in oil industry spending, if there's a cutback in oil production in countries like the Venezuela's or Nigeria's, we will definitely have a supportive push in 2016 for oil prices.

But yes, I do think that down the curve, 2017 and 2018, if demand continues to pick up, there's going to be a bigger chance of a spike. So we can hold a range for a year, maybe a little bit longer than that. But past that, there's definitely a threat of spiking back up if demand stays on pace.

OP: In a similar vein, not a lot of people are talking about the incredibly small level of spare capacity that OPEC has sitting on the sidelines. Saudi Arabia is producing pretty much flat out and only has a little over 1 million barrels per day sitting in spare capacity. So, do you see that as an issue? Could a supply outage in Venezuela or Nigeria or anywhere else actually force up oil prices because we have limited capacity to address that outage?

CL: Normally, yes. Three, four years ago, absolutely. We could see a spike because of that lack of ability to get more oil online outside of Saudi Arabia. But the game has changed in the last few months even. The U.S. is producing 9 million barrels per day. We are importing 3 million from Canada alone.

So if prices were to go higher, I think that production in the U.S. could increase and even in Canada. And the difference now is that the U.S. can export crude oil. So if there is a lack of supply out there, the U.S. does have the ability to kind of make up some of that ground if necessary. So that's the game changer here. The U.S. lifted the export ban and the high U.S. production, including Canadian production and possibly even Mexico...we could probably make up for that a lot faster than we could have in past years.

OP: Interesting. So, lifting the export ban...how do you see that affecting the oil markets? It sounds like you are saying you think it opens up the possibility of a sort of a second spare capacity coming from U.S. shale. How will lifting the export ban affect oil markets in 2016?

CL: It definitely puts another competitor into the market. Even though it is oversupplied there's a lot more value in being a consumer and an importer and exporter to the U.S. So a country that is trying to build up trade might want to buy crude from the U.S. with more interest than they would from another country, whatever country that may be.

So there is that to think about, building relationships and trade back and forth between countries, is a big deal. Now that the U.S. is able to do so, that might put us in a favorable spot with a lot more consumers. So I think that this year we are not going to see too much of that pushed forward, but it's something to keep an eye on. I think that our exports could definitely grow this year, now that the export ban isn't there. To places that are already being supplied by other countries, we might be able to step in and step up.

OP: Do you see any risk to the oil markets from the conflict between Iran and Saudi Arabia?

CL: You know, that is definitely an issue. I think that the biggest difference now, again, only in the past few years we are seeing the U.S. and other western countries that are staying out of the fray. As long as that happens, there is a chance that anything could happen, and that is not good for anybody. But when you think about the risk-reward...North Sea in Europe, or Russia at 10 million barrels a day, or the U.S. with the ability to climb up and down and export crude, conflict in the Middle East would definitely raise prices but it would definitely be an advantage to countries that are now starting to pick up the pace.

OP: And finally, the answer to the question that everyone wants to know: where do you see oil prices going this year?

CL: Well, I think the funny thing is that in past years we have all had a price target, where we all forecasted. Now I think it is about a range. It's about where are oil prices going to stay in the next year and probably the next couple of years, at least with this pace of economic growth and oil production.

So, I'd say between $35 and $55 right now. And I think to narrow that down I'd probably say that $45 to $48 is going to be an average price for the year. And I do think that there is definitely more risk to the upside than there is to the downside at this point.

OP: And do you see that persisting through 2017, or going up dramatically, or is it just too hard to tell?

CL: I think it goes up. I think that definitely the tensions in the Middle East are not going to go away. That is something that is historically not going to go away. It is never going to go away. I think that if there are more economies that slowdown or break off from production, we could definitely see that issues like growth in the U.S. pick up the pace of WTI price more than Brent. So I definitely think that is something that could continue over the next couple of years.

OP: Carl, Thank you very much.

CL: Alright, thanks so much.

Article Source: http://oilprice.com/Interviews/Will-Oil-Prices-Rebound-in-2016-Interview-With-Carl-Larry.html

By Nick Cunningham of Oilprice.com

© 2016 Copyright OilPrice.com - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

OilPrice.com Archive

© 2005-2016 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

Catching a Falling Financial Knife