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Where can oil go from here?


19 October 2021

Two key oil benchmarks began this week in a strong position. WTI was flitting between $81.50 to $82.28 between Monday and Tuesday, even reaching $83.17 on Monday. Brent is closing in on all-time highs. Trading at around $84.80 at the time of writing, its only a couple of percentage points away from its October 2018 high of $86. So, what’s supporting prices this week? It’s the old supply and demand struggle.

Saudi Arabia helped stoke the fires a little with its refusal to open the OPEC+ taps further. The kingdom and OPEC chief said last week it and the cartel were committed to their monthly production boosts.

Each month until at least April next year, OPEC members will be collectively upping production by 400,000 bpd. Rapidly rising natural gas and coal prices could also benefit oil. As winter rolls in, and temperatures drop, the high costs from those two commodities could necessitate a switch to oil heating. Crude oil’s already a high-demand product as it is. Supplies are also being kept tight, at least from OPEC+. 

The conditions are there for a sustained rally – but we have to be careful of market exhaustion. Support levels identified for WTI and Brent have been variously stated at $75 and $80 respectively by oil analysts. But some market observers are much more optimistic…

Billionaire businessman suggests $100 oil price is on the way

United Refining Company Chief Executive John Catsimatidis has said he believes crude oil can hit $100 this year.

“With oil nearly at $84 this morning, we are going to see $100 oil, it looks like, there’s no sign of it stopping,” Catsimatidis said in an interview with Fox Business on Monday.

The billionaire cited inflation and rising energy costs across the board as reasons why crude might break the $100 barrier. Catsimatidis’ comments mirror those of another big oil player: Russian President Vladimir Putin. When quizzed by a CNBC journalist during the Russian Energy Week summit last Wednesday, Russia’s leader said $100 is “quite possible”.

However, Putin toed a cautious line saying: “Russia and our partners and OPEC + group, I would say we are doing everything possible to make sure the oil market stabilizes. “We are trying not to allow any shock peaks in prices. We certainly do not want to have that — it is not in our interests.”

It kind of is in Russia’s interest to have a high oil price. 40% of government revenue stem from hydrocarbons, but right now it appears Russia is more concerned with playing.

More US shale oil on the way?

Shale oil could spoil OPEC+’s party. More US rigs in the Permian Basin are coming online. As it stands, the rig count is 136 rigs higher in this prime shale geography than this time last year. Analysts believe Permian infrastructure could end up pumping out 4.9m bpd of crude by early 2022. Some are even expecting it to hit this number this month.

OPEC estimates suggest the US will add 800,000 bpd to production via shale sources next year. The EIA figure is roughly 700,000 bpd. Plenty of black gold to help calm the Biden White House’s supply jitters.

Biden and co. have been calling for OPEC and oil producers to step up their production as gasoline prices rise in the US. However, OPEC is not budging as mentioned above. I mean, if you do insist on outfitting regular cars with thirsty V8 motors, you will pay the gasoline cost. Did America not learn anything from the 70s energy crisis?

US drillers are being advised not to chase high oil prices though at the risk of drilling themselves into oblivion. Looking at storage US commercial inventories rose 6.1m bpd according to the EIA stockpile report for the week ending October 8th. At 427.0 million barrels, U.S. crude oil inventories are about 6% below the five year average for this time of year.

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