Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Crude Oil $100 Price in 2019?

Commodities / Crude Oil Feb 09, 2018 - 02:58 AM GMT

By: EconMatters

Commodities

The stock market is a dangerous place to be right now. Watching VIX spiked from 17 to 50+ then crashing back to 30 within two days can certainly cause a cardiac arrest or two. What’s even worse is that investors took this little dip as a buying opportunity throwing more good money at this deformed market. On Tuesday U.S. stocks rebounded to post the biggest rally in 15 months. We have discussed many times that stocks have a long way to go before any normalcy may be restored. On that note, let’s move to the oil/gasoline market instead.



Crude’s Recent Rally

Crude oil is not immune to this global equity selloff. U.S. West Texas Intermediate (WTI) crude ended Tuesday's session at $63.39, which is the lowest in two weeks. Crude oil has actually been on a rally with WTI topping $65/b for the first time in more than three years on Jan. 24 after data showed continuing drawdown of crude storage, while Brent also climbed to around $70, the highest point since Dec. 5, 2014.

Another contributing factor to stronger oil prices is a weaker U.S. dollar. The dollar index hit a three-year-low two weeks ago after US Treasury Secretary Mnuchin said a weaker greenback is “good” for the country. Global commodities such as crude oil are priced in dollar, so a lower dollar usually pushes up the commodity price.

$100 Oil in 2019?

The recent oil price recovery has some analysts believing $100 oil is in the cards. According to London-based consultancy Energy Aspects, a slump in new production outside the U.S. shale patch in 2019 could help boost Brent above $100/b next year. The Brent-WTI price spread averaged around $3.33/b in 2017. In 2016, the average spread was less than $1/b. This implies WTI should be close to $100 in the same scenario.

Well, many things can and will mess up the $100 price prospect. The more conspicuous one is increasing supply and stockpile, of course.

US Oil Production to Surpass Saudi and Russia

In its latest monthly oil market report, International Energy Agency (IEA) is predicting U.S. crude production, boosted by “a resurgent shale industry”, would climb above 10 million barrels a day this year surpassing Saudi Arabia and Russia. Saudi Arabia and rivaling Russia are the world’s two largest crude producers currently accounting over 40% of global oil, and the US is on pace to surpass them. According to the IEA, “this year promises to be a record-setting one for the US.”

Market 101, higher prices incentivize more production. The recent rally in crude prices has led to riving increased investment in Oil & Gas Production facilities and Infrastructure fueling more drilling rigs and oil production particularly in the shale industry. Many poorly managed smaller shale oil producers with high debt that should have gone bankrupt after the oil crash in 2014 are still hanging in with banks reluctant to write off massive losses still extending life lines.

People seem to have forgotten that surging supplies of American shale producers played a major role in the price collapse of 2014. Higher oil prices also will put a dent in demand. How long can this inventory rebalancing go even with the oil cartel product cut?

Does It Matter Where the Glut Sits?

The current crude price action makes fundamental sense as supply is dwindling with OPEC oil production control in place. Last week, US Energy Information Administration (EIA) reported the tenth straight weekly drop in U.S. stockpiles of crude oil. U.S. crude total inventory stood at 411.6 million barrels, the lowest since February 2015.



However, the same logic cannot be applied to the gasoline market. Gasoline futures (RBOB) climb despite increasing inventory. The latest EIA reports indicated gasoline inventories actually rose by 3.1 million barrels and stocks of distillate fuels, which include diesel, were up by 639,000 barrels. In fact, the current gasoline stock level is hovering around the 5-year high. And according to analysts FGE, fuel stocks in Europe, Singapore and the United States built by some 27.5 million barrels in the first two weeks of 2018.

International Energy Agency data shows that in the fourth quarter of 2017, refinery runs hit a record 81.5 million barrels per day (bpd). So the decline in the oil inventory actually comes from higher refinery draw and utilization to make petroleum products that ended up sitting in the gasoline storage. In other words, the glut in crude oil has now turned into surplus in gasoline. The disparity between the oil and gasoline inventory actually paints a picture of a weak oil market as well as the broader economy.

Refining Margins Hurt

Higher oil price also hurt refining margins. Reuters reported profit margins in key refining hubs dropped sharply in recent weeks - by over 50% in the U.S. Gulf Coast and northwest Europe, Reuters data shows, by as much as over 50% in the U.S. Gulf Coast and northwest Europe. In addition, there’s a bunch of refinery turnaround scheduled in spring increasing expectations that some refiners will reduce operating rates. That would mean less drawdown of crude inventory thus putting downward pressure on crude prices.

$100 Oil, But Not in 2019

Crude oil market has many players/dynamics to consider and could turn volatile on any geopolitical events. Most oil bears seem to rely on EVs and natural gas taking over the world, but we are pretty far from it right now. The oil bulls seem to think China and the rest of the world will perpetually crank out 8% GDP growth per year, which is totally unrealistic and wishful thinking.

Central banks QE spree will come to an end with the world facing increasing risk of inflation and recession. With this macro backdrop, I think the-lower-for-longer scenario still holds for oil and the scenario of $100 oil in 2019 seems overly optimistic.

Disclosure: No Positions

By EconMatters

http://www.econmatters.com/

The theory of quantum mechanics and Einstein’s theory of relativity (E=mc2) have taught us that matter (yin) and energy (yang) are inter-related and interdependent. This interconnectness of all things is the essense of the concept “yin-yang”, and Einstein’s fundamental equation: matter equals energy. The same theories may be applied to equities and commodity markets.

All things within the markets and macro-economy undergo constant change and transformation, and everything is interconnected. That’s why here at Economic Forecasts & Opinions, we focus on identifying the fundamental theories of cause and effect in the markets to help you achieve a great continuum of portfolio yin-yang equilibrium.

That's why, with a team of analysts, we at EconMatters focus on identifying the fundamental theories of cause and effect in the financial markets that matters to your portfolio.

© 2018 Copyright EconMatters - 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.

EconMatters 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