Oil Bulls Might Not Like the New Year

 
I think the oil bulls will lose on US shale because they've peaked. They've done a great job of staying on top and being smart about it, but there aren't really any more costs to cut and productivity seems to be maxed out. Investor patience is pretty much at its end. They want to see profits now because they've been patience while shale drillers regroup. 

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You might be right, but I think your timing is a bit off. I think we'll like the 'New Year'. 2019 might be a different story, and not just for oil. But at least for the first half of 2018, we'll continue to ride this raging bull. 

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I'm not sure the bulls should be counting on Middle East crises, or specifically a Saudi crisis to keep oil prices on the upswing. MBS might be panicking to get his ducks in order and get enough cash for Vision 2030, and there might be a lot of instability, but this isn't a major geopolitical event--it's just a continuation of the instability that started with the crown prince's transition to power. I don't think it's going to reach a climax by the New Year ... oil prices are already starting to settle down.

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I think we'll see oil settle down to just over $50 by the end of the year. Might be some more volatility next week because now there's talk that the deal Russia and OPEC hammered out to extend production cuts could be shorter than the market anticipated. The market doesn't take disappointments well ...

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yeah, the Russians aren't keen on continuing to prop up US shale--and give up more market share--so I agree the extension might not be as long as the market was hoping. Prices will respond negatively to anything less than a full-year extension commitment by OPEC/Russia ... 

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As Mark Papa said “shale is not nearly the Big Bad Wolf that everybody thinks”.

 

 

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This week's OPEC meeting could be fateful for oil price estimates for the next year. Many believe that OPEC and some producers outside the cartel will extend the agreement to cut production by 1.8 million barrels per day by the end of 2018. Personally, I think if Russia is not part of this package, oil prices will fall by seven days after that meeting. Otherwise, we may expect that the price of oil will be rising up very soon.

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OPEC's meeting will definitely have an impact, but I doubt it will have any lasting effect--a sustained upswing will only come after oil fundamentals are ...well... fundamentally changed. MBS can rock the middle east boat as much as he wants, but as KT said above, this too will not have any lasting effect. Middle East skirmishes are hardly anything new and certainly haven't affected oil production in any meaningful way.

OPEC's meeting will have an immediate but temporary effect as most of the traders will move to make money off the announcement itself (not the outcome) either way. The market is already pricing in an extension to end-2018. 

2018 is set to be an interesting oil year, with US oil inventory and exports a major potential disrupter, along with Aramco's IPO (which I suspect will be significantly delayed), and new tech that will make oil more profitable which is essential for the industry.

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Have you seen report of World Bank for oil prices in 2018? They believe that oil prices will rise next year to $ 56 / bbl, or $ 3 a barrel. The same report says that production in Libya, Nigeria and Venezuela could be variable, and the members of the OPEC and other manufacturers could still reduce production and 'raise' the price of oil. I don't believe  that any move on this sensitive field could make a big damage for the big players on the world stage. Small countries will again be the most affected. In every sense. 

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