Tuesday, February 3, 2015

Is Oil Moving Out Of The $45-$50 Per Barrel Window?

As of yesterday the Brent crude oil price rose above $50 per barrel, and today the West Texas Intermediate (WTI) followed it above to nearly $52 per barrel while Brent is up to nearly $57.  Several weeks ago I called a bottom to the oil price at $45, which did get down to $44 twice briefly.  This was based on the public statements made in November by leading Saudi figures that they were planning their budget on an oil price within this particular window.  Of course, it is no problem for the Saudis see a price above the top end of this window.  It certainly makes their budgeteering easier, and making them more money.  The more serious part of the matter was their calling of the bottom, which now looks much more like it is going to stick for awhile, even this price surge stops soon.

I am not going to provide any links for this post, but have gone dredging around through various sources and posts.  The upshot is quite a hodge podge of forecasts and trends.  Nobody is calling for a fall below $45, although some are talking about a window of $45 to $55 (for the WTI).  The clear immediate cause of the price rise is a report of an unexpectedly sharp fall in the number of drilling rigs in the US fields.  This seems to have led to an exit of the shorts, although for how long?

Some analysts claim the price could go to $61 and stay there or near there.  For  the Brent price, that is not too away, so certainly could happen.  More dramatically at the far high end, although this is not a near term forecast, OPEC Secretary-General as-Badri has told BBC that the price could go to $200 per barrel.  Well, maybe, but indeed probably not in the near future, and Saudi figures have said that we shall not see $100 per barrel price again, or at least not any time soon.

On the other side, there are some near term factors that could hold the price down or even push it back down.  One is that apparently Chinese demand has fallen and inventories near China are up.  Furthermore, inventories at Cushing, OK have reached an all time high.  It may be that awareness of this on-the-ground situation rather than forecasts of what may happen months from now as the supply cutbacks gradually come in, that has held the WTI price further behind as speculators in Europe have pushed up the Brent price on the basis of these reports out of the US.

So, there are lots of possibilities, although nobody is calling for a sustained price below $45 anytime soon.  That looks indeed like the bottom, more or less.

Oh, and I have heard that Russian media figures are claiming the price will go to $70 per barrel or above by March.  This seems a bit overly optimistic for their position, although apparently that is a major cutoff for some of their  production fields to make a profit.  But, I am not going on further at this time or place on how reliable statements or forecasts possibly involving wishful thinking coming out of Russia are.

Barkley Rosser

Updtate, Feb. 4:  Well, this recent price surge may be over.  WTI is down to $50.37 per barrel as of a few minutes ago, just barely out of the $45-$50 window.  It has moved down more than Brent crude, which is now nearly $6 higher than WTI.  Given that reportedly the uipward surge was based on deelo;pments in the US, what is happening with WTI may be more indicative of the underlying situation.

Oh, and linking my last two posts, there is now a report floating around that indeed the Saudis are consciously acting to keep the price lower in order to pressure the Russians to make nice in Syria and reduce their support of Assad.  I think that remains to be seen.

Later 2/4 update:  Promise this will be the last for this thread, but end of day WTI was at $48.40 and Brent at $54.64 or something like that, more than a $6 gap, which was less than a dollar a couple of weeks ago.  Anyway, WTI is back in that $45-$50 corridor for now, even if Brent is still ousside it. Will it stay there?  I am not going to comment or forecast further unless somebody else does in the comments, which nobody has bothered to do so far.  But, there it is.

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