Five Reasons Why Oil Prices Could Move Even Higher – OutPut
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Five Reasons Why Oil Prices Could Move Even Higher

Five Reasons Why Oil Prices Could Move Even Higher

The most recent in a series of oil price rebounds we’ve seen this year has the market speculating which direction the price will move next.  Since December, the price for WTI has see-sawed several times, moving between a low of $60/bbl to a high in the $65/bbl range.

This latest move saw the price run up over $67/bbl on Friday.  While the price has softened somewhat since and could move slightly lower in the next few days, there are reasons to believe that it could run up even higher and approach the $70 level in the coming weeks.  Here are five of those reasons:

The Saudis want $80 Brent – Bloomberg reported last week that, to support its social state and in advance of its initial public offering on a portion of state oil company Saudi Aramco, Saudi Arabia has been meeting with other OPEC nations and other key influencers to signal the Kingdom’s desire to move the Brent crude price up into the $80/bbl range.  Assuming the Brent to WTI differential remained consistent, that would equate to a WTI price per barrel of about $75.

The global oil market is nearing balance – The International Energy Agency (IEA) announced on April 12 that crude oil inventories will fall below the rolling 5-year average in the next 2-3 months , signaling a re-balancing of global supply and demand, and the end of the supply glut that caused the price to collapse in 2014.

Overall OPEC production has dropped significantly during 2018 – OPEC’s crude oil production fell by 70,000 bopd during February and a whopping 201,000 bopd in March, dropping the cartel’s overall production to 31.96 million barrels per day.  While overall global production actually rose during March, the OPEC numbers indicate continuing strong compliance with the cartel’s export limitation deal with Russia and other non-OPEC countries, a factor that has driven the rise in crude prices from the mid-$40s in late 2016 to today’s current levels.

Global demand for crude oil remains strong –In its April forecast, the U.S. Energy Information Administration (EIA) raised its projection for global demand growth to 1.85 million bopd.  This follows upwards revisions from first-of-the-year estimates by the IEA and OPEC, making 2018 the fourth consecutive year in which actual crude demand out-paced initial projections.

Geopolitical risk keeps rising – Tensions in the Middle East have risen significantly in the past few weeks, and that always adds to the “fear premium” in crude prices.  The growing tensions between the U.S. and Russia, the likelihood that President Trump will cancel U.S. participation in the Obama executive agreement with Iran, and the continuing slow-motion collapse of Venezuela are other factors that keep adding to this premium.  Things could change, of course, but it is difficult to see what likely upcoming events would take place to accomplish that.

Flying in the face of all these bullish factors, of course, is the continued rising level of U.S. crude production, which sets new records with each passing month.  But that is being out-paced by the combination of strong OPEC/Russia adherence to their agreed-to production levels and the growth of global demand for the commodity, which shows no sign of slowing down.

On Friday, Credit Suisse raised its WTI average price forecast for 2018 from $56/bbl all the way up to $66/bbl.  Whan all factors are taken into consideration, it’s easy to see why.

David Blackmon – For Forbes

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