I view oil through a 25-year career of daily engagement in the futures markets. It’s not the standard Wall Street view.
I can’t describe how all that experience comes together but I CAN show you a few of the commodity factors that I look at that others don’t - making you more capable in understanding the energy sector, no matter what part of it you’re interested in.
One of the less discussed but critical factors impacting the trajectory of oil prices are oil financial factors.
Oil is priced physically at many points on the globe – and each price point is different, just like the same house would be priced differently depending on where you were. But oil is also tied FINANCIALLY to the benchmark prices funneled through the exchanges that handle forwards and futures, and those prices are what really set the physical prices around the globe.
Take our current circumstance: Global oil production is up about 800mm barrels a day in 2012 and demand is up perhaps 200-250mm barrels less than that. That would imply an increasing surplus and why you’ve seen many oil analysts predict lower prices this year –BofA even suggested $50 a barrel as possible for 2013.
Here’s why I think it won’t happen.
Two things are feeding into the financial price point for Brent oil traded at the Intercontinental exchange (ICE) that make a deeply dropping price unlikely…