Views on the Future Price of Oil: the Good, the Bad and the Ugly

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There are no shortages of oil experts giving their opinions regarding the future price of oil. The price volatility in the oil market has been much higher than the overall market. It has made some traders and hedge fund managers a lot of money during the first quarter of 2015. For the record, I am still bearish on the oil patch as an investment but I have traded some options on Canadian oil companies in my play money account.

The Good:

Energy entrepreneur Boone Pickens was on CNBC on  March 19th

He sees $70-a-barrel oil by year’s end, and between $80 and $90 within 12 to 18 months. But Pickens did dial down his longer-range forecast from December, when he predicted on “Squawk Box” $90 to $100 barrel in 12 to 18 months.

CNBC’s Jim Cramer on Mad Money Mar 11

Forget the oil patch! There’s no crash in sight Jim Cramer

Jim Cramer has been waiting with bated breath for some sort of collapse of oil. With all these talks of a $48 oil price causing oil companies to go bust, where the heck is the collapse? Cramer has also been waiting for the junk bond market to go up in flames, now that it is flooded with $200 billion in oil and gas paper that was raised back when oil was at $90 and headed higher. How the heck is it still going strong?

Even the high-yield ETF called HYG, which includes a lot of these junk bonds, has pretty much sustained its rally since the bottom where most oil stocks hit their low. Cramer thinks that if things were really as bad as they are supposed to be, wouldn’t HYG be down at least 10 to 15 percent?

The Bad:

Exxon CEO Rex Tillerson Mar 5 on CNBC

“Expect low prices, more volatility in oil: Exxon CEO”

He would not predict where oil prices were headed. He noted that U.S. crude could dip below the $40-$50 level for a period of time because of those inventory numbers or if things calm down in spots like Libya or Iraq, which could bring more oil online. Prices could also rise if there were disruptions to supply elsewhere in the world, he added.

In the next couple of years “we’re going to kinda wallow around where we are with a little bit this way, a little bit that way, until some of this sorts itself out.”

“If you look at the performance of the U.S. economy, it’s OK but it’s not robust. Europe is still struggling with declining demand and China has actually slowed its rate of energy demand growth. So all of those are conspiring to create this imbalance,” he said.

“Meanwhile, Exxon Mobil is cutting capital expenditures by about $4.5 billion, to $34 billion for 2015,” Tillerson said. However, Exxon  is expecting an increase in production

 

Goldman Sachs says its oil forecast at US$40 per barrel may be too low, as market ‘surprisingly healthy’

Bloomberg News March 9, 2015

Goldman forecast in a Jan. 11 note that WTI would drop as low as US$40.50 a barrel in the second quarter before rebounding to US$65 in 2016. The bank projected that Brent will slide as low as US$42 and average US$70 next year.

WTI may not reach Goldman’s forecast of US$65 a barrel in 2016 as U.S. producers prepare to increase activity later this year by raising equity, reducing debt and “building an uncompleted well war chest,” according to the report.

The Ugly:

Citi: Oil Could Plunge to $20, and This Might Be ‘the End of OPEC’

Bloomberg Feb 9, 2015

The recent surge in oil prices is just a “head-fake,” and oil as cheap as $20 a barrel may soon be on the way, Citigroup said in a report on Monday as it lowered its forecast for crude. 

Despite global declines in spending that have driven up oil prices in recent weeks, oil production in the U.S. is still rising, wrote Edward Morse, Citigroup’s global head of commodity research. Brazil and Russia are pumping oil at record levels, and Saudi Arabia, Iraq and Iran have been fighting to maintain their market share by cutting prices to Asia. The market is oversupply, and storage tanks are topping out.

A pullback in production isn’t likely until the third quarter, Morse said. In the meantime, West Texas Intermediate Crude, which currently trades at around $52 a barrel, could fall to the $20 range “for a while,” according to the report.

Dennis Gartman, the Commodities King, March 19 on CNBC’s “Futures Now”

For months I’ve said that crude oil is heading from the upper left to the lower right of the chart,” said the CNBC contributor and editor and publisher of The Gartman Letter. “I wouldn’t be surprised if oil went down to about $15 a barrel.”

“We’re going to have an abundance of crude. Storage is going to be topped out very soon and the front month spread is going to continue to deteriorate,” he said.

Some addition information; The cost to store a barrel of oil in an oil tanker at sea is about $1.20 per month. The cost in land storage tanks in the U.S. is about $0.50 per month. Oil is also being sold in the future markets and the December price is $8.00 higher than the May price. The oil futures market is pricing oil contracts below $60 a barrel until May 2017.

Before you decide who’s view may be right, Goldman & Citi depend on their trading operations to add earnings to their bottom line. I would take their views with a grain of salt. Jim Cramer was a hedge fund manager and now is paid to entertain you on T.V. Dennis Gartman wants to sell you his very expensive newsletter. Boone Pickens retired from the oil & gas business  a billionaire however he is 86 years old and his view may not be very accurate.

In my humble opinion, I think the CEO of Exxon’s view is worth your attention.

What is your view on the future price of oil? Are you a bull or a bear on the oil patch?

 

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One thought on “Views on the Future Price of Oil: the Good, the Bad and the Ugly

  1. IMHO, nobody was predicting current numbers like this a year ago and of course they were way off then. Now everyone seems to be swinging the prediction pendulum to far the other way with $20 or less oil prices. I think they are still way off.

    However, with that said, I wouldn’t be surprised to see the price of oil do exactly what Rex indicated.

    Like

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