O&G now in the Magical Goldilocks Zone of $70 Brent

I'll say it again for dang near the thousandth time in the past 12 months or so ...

I expect an average of $70 Oil [Brent] for 2019.

In my view, $70 oil is a suitable, sustainable balance between global oil producers and global oil consumers...
Not too high, not too low. Goldilocks price.

At $70 oil, sufficient profits can be made by most oil producers to reinvest in exceedingly cost intensive Exploration activities, as well as get caught up on long-delayed major maintenance activities, as well as un-mothball years-delayed projects.  (Some OPEC country leaders that depend on $90+ oil prices may be inching toward receiving Darwin Awards from their minions.  Can't please everyone...)

My concern at the moment is the Mainstream Media and traders will go into an irrational feeding frenzy and push oil prices artificially higher by this Summer, overshooting the Goldilocks $70 price and push *too high* toward $80+ prices.  And then in Fall this year over-react again and drop back down below $70 yet again.

Just look what happened last Summer and Fall... seems like a repeat is heading this way again.

Anyway, great news that Exploration & Production activities are ramping up again, due to that magical $70 oil trigger.

If Oil [Brent] can stay near the Goldilocks $70, then perhaps we can avoid another horrific roller coaster ride of oil price craziness.

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

Malaysia O&G stocks in bullish momentum

 

  • Like 3
  • Upvote 2

Share this post


Link to post
Share on other sites

Tom,

I wonder if there will be enough supply at $70/b for Brent, perhaps, we will see.  It will depend on what OPEC an Russia do, if they raise output we might see prices drop back to $60/b.  It might be that $65/b is the magic number for Brent.  Not sure what happens to tight oil producers at $55/b, but it might temper the tight oil output increases a bit.

  • Like 1

Share this post


Link to post
Share on other sites

Dennis,

$70 oil [Brent] is simply my own opinion of the semi-magical price that should provide a relative balance between most global oil producers and most global oil consumers, for the longer term (the next few years).

Clearly, others will have very different opinions of either a higher or lower number for that semi-magical Goldilocks oil price. 

Saudis and many other one trick pony OPEC nations who rely almost exclusively on oil revenues want $90+ oil prices, to balance the government budgets of their petro-welfare state dictatorships.  (Yes, I still view Saudi Arabia as one of the worst Absolute Dictatorships in the world.  Ditto Iran.)

But... $90+ oil is simply not sustainable in the long term, in my opinion.  It would lead to yet another cycle of extreme oil price roller coastering, as every oil producer would go batsh*t crazy and ramp up their oil production to ELEVENTY, and at the same time, kill off global demand for oil with excessively high oil prices.

On the other end, many oil consuming countries would prefer $50- or even $40- oil prices.  But that is not a sufficiently high enough oil price to allow many oil producers to make enough profits to re-invest back into new, exceedingly expensive Exploration & Production activies.  With the natural decline rates of oil wells, this lack of new E&P will eventually lead to insufficient global supply, which would trigger another round of excessively high oil price spikes, due to insufficient spare capacity for the inevitable global oil disruptions due to wars, politics, etc.

So, $50- or $40- oil is simply not sustainable in the long term either, in my opinion.  

Either too high or too low oil prices would eventually lead to yet another cycle of extreme oil price spikes and crashes and roller coastering.

So ... it seems to me ... for the next few years ... $70 oil [Brent] appears to be around the best of both worlds for most global oil producers and most oil consumers, in the macro view.

Also, WTI is a different animal altogether.  I am not talking about tight oil here, I am discussing Brent.

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

Please do note, I feel very strongly about this, and have mentioned all of the above again and again and again, so none of this should be surprising.

And don't mind me, I'll just be over here doing my HAPPY HAPPY JOY JOY DANCE to the $70 oil [Brent] groove : )

 

calvin-hobbes-2.jpg

  • Like 1

Share this post


Link to post
Share on other sites

1 hour ago, D Coyne said:

Tom,

I wonder if there will be enough supply at $70/b for Brent, perhaps, we will see.  It will depend on what OPEC an Russia do, if they raise output we might see prices drop back to $60/b.  It might be that $65/b is the magic number for Brent.  Not sure what happens to tight oil producers at $55/b, but it might temper the tight oil output increases a bit.

My read on Russia - seems to have two opposing forces on Oil production - one faction (bureaucracy) seems to value OPEC and its role in price stabilization (ok maybe doesnt always succeed, but something is better than nothing) and another (oil production heads) that wants more production freedom. US$70 brent should satisfy both. Although Oil seems to have similar speculation/+ve reinforcement trends as Gold, and with OPEC having cancelled their April deliberation (premature, in hindsight), US$80+ may be in sight.

And agree with Tom, wont hold - US$70+ WTI and US$80+ Brent US Shale independents will go crazy on production again.

My 2 cents...

  • Like 2

Share this post


Link to post
Share on other sites

On 4/10/2019 at 8:38 AM, Tom Kirkman said:

My concern at the moment is the Mainstream Media and traders will go into an irrational feeding frenzy and push oil prices artificially higher by this Summer, overshooting the Goldilocks $70 price and push *too high* toward $80+ prices.  And then in Fall this year over-react again and drop back down below $70 yet again.

Just look what happened last Summer and Fall... seems like a repeat is heading this way again.

<  Ahem  >

Update ... analysts weigh in ...

Ya think ! ? ! ?

What the heck did I just say above a week ago ?

Does anybody even listen to my blatherings, or am I just ...  ..  ah never mind.  I'll just take it as refreshing that highly paid analysts have eventually arrived at a similar conclusion as I did, albeit in their more verbose and roundabout way.   Hrrmmmmppphhh.

===========================

Brent Could Hit $80 This Summer As Hedge Funds Lose Steam

Following the crash in Q4 2018, oil prices have already increased by more than 30 percent so far this year.

But there is still room for oil to run and Brent could go as high as $80 a barrel this summer, due to geopolitical issues, OPEC and allies’ cuts, resilient demand, and not-so-crowded hedge fund longs suggesting that bulls have room to add more bullish positions in crude oil futures and options, according to a research note from RBC Capital Markets, cited by CNBC.

RBC strategists raised significantly their oil price forecasts for the average prices of Brent and WTI this year. Brent Crude is now seen averaging $75 a barrel in 2019, up from the previous call of $69.50, while WTI is expected to average $67 per barrel throughout the year, up from $61.30 in RBC’s previous estimate.

According to RBC’s experts, this summer, Brent could even hit $80.

This is a threshold which oil consuming countries such as India consider too high and which analysts say is the beginning of demand destruction.

“We see price risk asymmetrically skewed to the upside spurred by geopolitically infused rallies that could shoot prices toward or even beyond our high-end, bull-case scenario and test the $80/bbl mark for intermittent periods this summer,” CNBC quoted RBC’s research note written by strategists Michael Tran, Helima Croft, and Christopher Louney.

Share this post


Link to post
Share on other sites

On ‎4‎/‎10‎/‎2019 at 3:16 PM, AcK said:

My read on Russia - seems to have two opposing forces on Oil production - one faction (bureaucracy) seems to value OPEC and its role in price stabilization (ok maybe doesnt always succeed, but something is better than nothing) and another (oil production heads) that wants more production freedom. US$70 brent should satisfy both. Although Oil seems to have similar speculation/+ve reinforcement trends as Gold, and with OPEC having cancelled their April deliberation (premature, in hindsight), US$80+ may be in sight.

And agree with Tom, wont hold - US$70+ WTI and US$80+ Brent US Shale independents will go crazy on production again.

My 2 cents...

AcK,

Sounds reasonable in the short term, longer term there might not be enough supply at $70/b for Brent (which is what I originally though Tom meant), it he meant $70/b WTI, and $80/b Brent, then supply will be adequate until 2022 or so IMO.

Share this post


Link to post
Share on other sites