Oil Prices Heading Higher, Maybe $80-ish Before Autumn?

Some of you may be tired of my ad nauseum comments about my hope for an average of $65 oil for this year.

As a reminder, my preference for a balanced oil price doesn't tend to get changed very often.  About 6 months ago, I finally upped my preferred hoped-for range from $50 to $65, after staying around $50 since 2015.

Paying attention to global events, particularly the last few weeks, leads me to reconsider the realities of oil supply & demand, oil prices and the global economy. Looks like the possibility of an oil supply shortfall is increasing. 

Venezuela in a tailspin, and looming reductions from Iran mean oil supplies are likely to tighten.

The risk of hiccups to global oil supply seem to be increasing, and it seems fairly inevitable that something will happen eventually to affect an oil producer somewhere.  With the global oil supply glut drawn down during the last 18 months or so, the upcoming oil production increase planned primarily by Saudi Arabia and Russia may not be sufficient to offset the drops in production by Venezuela and a few other producers.  And if Iran's total output gets successfully cut off completely by sanctions, then the increase by Russia + Saudi Arabia will not be sufficient.

I'm not an oil trader.  I'm not an oil price forecaster.

But from what I can see going on lately in the global oil & gas industry + the global politics intertwined with the O&G biz, it seems increasingly likely that we may see $80-ish oil this Summer, and even more likely by this Fall.

Do you own reading of what's going on, and draw your own conclusions about what is happening.

Just my opinion; as always, you are free to disagree.

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welcome to the 80-ish club, @Tom Kirkman:)

Hoping we may overshoot this mark but also hoping there will be no GFC this year - you may be starting to see cracks in my irrational optimism...

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I figure $80 by end of year. I actually hope it does not go higher for a year or so, as we could end up right back with another crash due to killing demand via high gasoline price.

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7 hours ago, BillKidd said:

I figure $80 by end of year. I actually hope it does not go higher for a year or so, as we could end up right back with another crash due to killing demand via high gasoline price.

Yes.  Oil prices going too high will crash the global economy.

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Quote

 

Technically WTI is overbought and we could see a short-term correction soon. The WTI chart points to ~ $78 to $80 per barrel. Without going into great detail there is a confluence of a 61.8% Fibonacci retracement, a long-term downtrend line and a cup & handle that point to those levels. Initial support is around $62.50 and long-term uptrend support is around 55. If however $ 80 is taken out on the upside there is not much resistance until we reach the previous highs around $ 107.

Fundamentally the global economy is growing and global annual demand should continue to increase between 1 and 2 million barrels per day for the foreseeable future unless trade issues lead to a global recession.

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The paper traders have run up prices just enough to suck in more victims.  Look for another bloodbath in O&G. 

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(edited)

17 hours ago, Outlaw Jackie said:

The paper traders have run up prices just enough to suck in more victims.  Look for another bloodbath in O&G. 

Looks like the bloodbath will start on Monday based on Trump's latest tweet. 

https://www.cnbc.com/2018/06/30/trump-says-saudi-king-has-agreed-to-his-request-to-raise-oil-productio.html

Edited by AE911truth.org

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47 minutes ago, AE911truth.org said:

Looks like the bloodbath will start on Monday based on Trump's latest tweet. 

https://www.cnbc.com/2018/06/30/trump-says-saudi-king-has-agreed-to-his-request-to-raise-oil-productio.html

Remember the Saudis are still looking to do an IPO for Aramco, so while they might not let prices get too high, they're also not going to start pumping another 2 million per day and crash the market.

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2 hours ago, Refman said:

Remember the Saudis are still looking to do an IPO for Aramco, so while they might not let prices get too high, they're also not going to start pumping another 2 million per day and crash the market.

Saudis have already started to pump 10.7 million barrels a day in June which was the highest production levels, similar to 2016. They are looking to increase it further to 11 million barrels a day. Their allies UAE and Kuwait will increase oil production to be 3.2-3.3 million barrels a day from today's 2.9 million barrels a day. 

This is to make the sanctions on iran effective. Iran was causing too much problems in Syria, yemen, Lebanon, Palestine, Iraq and pretty much everywhere in middle east to gain dominance by its cultural soft power and monetary and military hard power.

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(edited)

3 hours ago, Refman said:

Remember the Saudis are still looking to do an IPO for Aramco, so while they might not let prices get too high, they're also not going to start pumping another 2 million per day and crash the market.

Remember the Aramco IPO will not take place until 2019 at the very earliest, so they can afford to let prices go down until the US mid-term elections in Novermber if they see it in their interest to insure GOP dominance of the US political scene (voters will tend to switch to the opposition if gasoline prices get too high).  In addition, low prices will have a secondary beneficial effect for them of placing a damper on the growth of the US shale oil fracking industry.

Edited by AE911truth.org

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I think you are about right. One thing I would add is that if oil was below $65 not many new projects would be undertaken by E&P companies which in turn drives up prices in the future. We are now in that realisation phase from the fairly recent low oil prices, not many new projects coming on stream and those that are carry substantial debt

In order to keep the oil industry alive we probably need $70 oil and price stability. I know Pr. Trump keeps banging on about oil prices, but he doesn't have to pay for deep water exploration etc. and try to make a profit that in turn is used on more exploration. No profit ,no exploration, simple.

Are the gasoline prices in the U.S around $2.50 a gallon? Well in the U.K it's roughly $7.50 a gallon!

 

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Update:

image_36480f95-dcae-4a36-b590-81e127c1b5d520180701_061631.jpg

The thing is, it seems unlikely that Saudi Arabia is able to increase their oil production by 2 million bpd.  

And even if it is possible, 2M bpd increase will create a hellacious havoc in Saudi's producing oil wells. 

Long term mess-up for Saudi oil well production characteristics just to extract a short term spike in production.  Or maybe that's part of the plan (yah, I know, that's a bit tin foily).

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According to the EIA, Saudi Arabia has a spare production capacity of at least 1 1/2 million bpd.

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52 minutes ago, AE911truth.org said:

According to the EIA, Saudi Arabia has a spare production capacity of at least 1 1/2 million bpd.

You are correct.  I appear to have over-reacted.

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White House provides more detail:

Dg_ACn1XUAUBLcy.jpg

 

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"IF and when necessary"

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12 hours ago, Tom Kirkman said:

Update:

image_36480f95-dcae-4a36-b590-81e127c1b5d520180701_061631.jpg

The thing is, it seems unlikely that Saudi Arabia is able to increase their oil production by 2 million bpd.  

And even if it is possible, 2M bpd increase will create a hellacious havoc in Saudi's producing oil wells. 

Long term mess-up for Saudi oil well production characteristics just to extract a short term spike in production.  Or maybe that's part of the plan (yah, I know, that's a bit tin foily).

KSA has oil reserves to the tune of 110GBL while USA has oil reserves to the tune of 30-35GBL. USA produces 10 million barrels a day while KSA peoduces 10 million barrels a day (increased to 10.7mbd in June). Isn't it obvious that KSA has ability to draw over 25 million barrels a day by putting the same amount strain as USA is putting on its oil fields and wella? Production of 12 million barrel is a small increase and can be easily handled

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3 hours ago, Bhimsen Pachawry said:

KSA has oil reserves to the tune of 110GBL while USA has oil reserves to the tune of 30-35GBL. USA produces 10 million barrels a day while KSA peoduces 10 million barrels a day (increased to 10.7mbd in June). Isn't it obvious that KSA has ability to draw over 25 million barrels a day by putting the same amount strain as USA is putting on its oil fields and wella? Production of 12 million barrel is a small increase and can be easily handled

If it was only that easy , or maybe the US stop exporting 1.76 mbd (april figures) , or stop ripping up agreements and then asking allies to stop buying oil from Iran who they ripped up said agreement, words and actions have consciences  

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Thanks 

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I've read all these interesting and well-informed comments. The one thing that is missing is a comparison of oil--a non-repleting asset--to every other commodity out there in the daily marketplace. I won't go into detail, but have you checked out the price of a loaf of "artisan" sourdough bread lately, or a pound of good cheddar? What about the price of an F150, or a new roof using shingles from Canada? In brief, hundred-dollar oil is very much in line with the stealth inflation that hit ordinary items about five years ago. We're producing plenty of light sweet crude to handle our domestic needs. The problem is the same one we have failed to address for several years now: most of our refineries are set to handle a very narrow window of crude feedstock: it has to be mixed with tar-oil from Canada, or heavy oil from Venezuela (oops, that's out), or, more importantly to the president's giant plan, the heavier (by comparison) oil from Saudi Arabia. If we retooled one refinery at a time, we could take care of our domestic production, cut back on this frenetic export/import gambit, and have the enclosed energy-independence that the president said he wanted.

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21 hours ago, Bhimsen Pachawry said:

Saudis have already started to pump 10.7 million barrels a day in June which was the highest production levels, similar to 2016. They are looking to increase it further to 11 million barrels a day. Their allies UAE and Kuwait will increase oil production to be 3.2-3.3 million barrels a day from today's 2.9 million barrels a day. 

This is to make the sanctions on iran effective. Iran was causing too much problems in Syria, yemen, Lebanon, Palestine, Iraq and pretty much everywhere in middle east to gain dominance by its cultural soft power and monetary and military hard power.

Fair point let me rephrase and omit the hard production numbers and just say the Saudis are not going to do anything to dramatically lower oil prices. 

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1 hour ago, Refman said:

Fair point let me rephrase and omit the hard production numbers and just say the Saudis are not going to do anything to dramatically lower oil prices. 

Without 2.5 million barrels a day oil from Iran, the price could have spiked to $120. GCC will nullify that. Iranian sanctions were at the behest of KSA & GCC. So, it is their duty to nullify the effect. The normal increase in demand and consequently the supply constraint will lead to oil prices of $90 by this year end.

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President Donald Trump says Saudi Arabia agreed to raise oil output by 2 million barrels a day, does it mean oil price will head back to sweat spot $50 in coming days?

 

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26 minutes ago, AMR said:

President Donald Trump says Saudi Arabia agreed to raise oil output by 2 million barrels a day, does it mean oil price will head back to sweat spot $50 in coming days?

 

My onion is is No, and that they're probably aiming for something like $70 on Brent and $65 on WTI. In other words lower but not too much lower.

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3 hours ago, AMR said:

President Donald Trump says Saudi Arabia agreed to raise oil output by 2 million barrels a day, does it mean oil price will head back to sweat spot $50 in coming days?

 

Seems unlikely to me.  Unexpected hiccups may cause a bit of unexpected chaos.

 

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