Friday, June 17, 2016

Expect higher oil prices soon

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In my last article for OilPrice.com (May 16, 2016), I laid out my reasoning for a prediction that the Global Oil Markets would soon be back in balance. Picking an exact date when an oil cycle will end is difficult, but they do call them “cycles” for a reason. This cycle is no different than all of the others that came before it. Oil producers and consumers respond to price changes, which brings supply & demand back into balance, just like they always do.

The last six major oil price cycles lasted an average of two years. This one started in July, 2014.

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The direction of the oil market should now be crystal clear to everyone. Demand growth is relentless. The products refined from oil are essential to a high standard of living on this planet. We will all complain when gasoline is back over $3.00/gallon, but we will continue to pay for it. Within 6 to 9 months, demand for oil should exceed production. High storage levels provide a cushion, but oil prices will continue to ramp higher.

Now that the FED has said they will hold off on raising rates for a while we will have a weak dollar as an additional catalyst for higher prices. In the end the oil price crash has crimped new oilfield investment by a couple trillion dollars which will have an effect on lowering future supply. Couple that fact with the trouble in Nigeria and potential collapse of the Venezuelan state and we could have additional catalysts for a higher price. I am still expecting $75 per barrel by year end. 

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