In case the link is broken, the analyst says this is why the price of oil will remain in the current trading range:
This week has been a near perfect storm for oil bears, featuring a series of reports pointing to falling demand:
- A third-straight monthly drop in Chinese manufacturing activity
- A steep rise in U.S. gasoline inventories to the highest level in 10 months
- Hovensa LLC saying it will shut its St. Croix refinery, due to falling demand
- The International Energy Agency's report that global oil demand fell by 300,000 barrels per day in the fourth quarter, the first decline since the financial crisis of 2008-09. The IEA further warned of weak demand in 2012 as the global economy cools, due largely to the crisis in Europe
The analyst brought up numerous reasons why the price of oil will remain near $100, but he did not mention the most important recent headline and the most important trend.
Most important recent headline: Saudi Arabia has set a $100-price target for oil (that would be about $88 for WTI).
Most important trend: closer relationship developing between Saudi Arabia (largest producer) and China (largest accelerating consumer). China can afford higher-priced oil (with all its US dollars) and China has an enormous appetite.
So, nothing new: expect a lot of volatility, but the trend is obvious.
By the way, Canadian oil sands, largest reservoir of oil outside the Mideast, is not profitable below $60. The Bakken is robust above $40 according to one operator in the region.
Add to that the excess printing of money by the Fed. Think quantitative easing, QE1 and QE2. The governments way of paying for debt through inflation and the devaluing of the currency. When and if the economy really takes off inflation will come calling.
ReplyDeleteI keep forgetting about that; yes, the $100 is in "current dollars."
Deletegeez... what another perfect chance for the US goverment to help Canada..when oil falls below 60 dollars they can help... they are good are running failing businesses.. perfect for a bailout
ReplyDeleteCanadian oil sands is expensive --
DeleteThat's another data point that folks don't think about. There may be a glut of oil (for the moment) but it doesn't come cheap. And it doesn't take much to disrupt the supply. But I have to agree, it is interesting that when Libya "fell," the price spiked; now that Libyan oil is reaching the market again, the price of oil has not fallen.
I'm sure folks much smarter than I can come up with a million reasons why oil has not come back down to "pre-Libyan" prices. It can't be the "general" instability in the Mideast; that's been a given for decades (with intermittent spikes when "war" breaks out). It can't be inflation (yet); the data says not much, if any, inflation for the moment.
One has to ask what is the new variable in the equation? I think it's China-Saudi relationship.
wait!!!!!!!! i would like to retact that,China will come over and make it profitable at 20 a barrel
ReplyDelete