New Outlook for Oil Prices

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8A6EC483-ACB4-CFDA-4A3F-741D5C728022.jpgCrude Prices have touched $50 per barrel and has generated a plethora of comments, projections and predictions.

First of all, the Saudis’s came out with a “We told you so” comment, forecasting still higher prices by the year end since, according to them, the production in the US has fallen.  Viewed in the context of OPEC itself not cutting down production, the rise in prices seems to vindicate the Saudi outlook.

However, we need to remind ourselves that there were 3 major outages in oil supply which could have triggered a price rise.  These are the fire in Canada and the problems in Nigeria and Colombia.  Those who believe that the US production is coming down on a permanent basis may be in for a surprise.  The word from the market is that many shale oil wells which had been shut down are getting reactivated.  Just to remind ourselves, shale oil can be produced from $10 to $70 per barrel and at each price level the profitable wells will be activated.  These will flood the market and ensure that a price rise will not be sustained.

For the many thousands who have lost their jobs, the absence of a sustained price increase will be bad news.  The market reality is that of supply and demand.  Thanks to oversupply of crude, almost all reserve storage facilities are full.

The whole world fretted and complained when crude oil prices reached $140 and above per barrel.  Then too it was a case of demand and supply and now too the low prices are attributable to a case of demand and supply.

Dr.Vis
President
Viswa Lab

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