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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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Could Oil Actually Hit $300?

Speculating on the price of oil is a favorite pastime in certain circles, and these include hedge funds. One prominent member of the hedge fund crowd this week said crude could rise to US$300 a barrel if current prices fail to rise further—and soon—to stimulate investments in new production.

Pierre Andurand, head of Andurand Capital Management LLP, wrote in a series of tweets that were later deleted that "If oil prices do not rise fast enough, $300 oil in a few years is not impossible," as quoted by Bloomberg.

Andurand seems to be one of a small group that also includes Saudi Energy Minister Khalid al-Falih, which believes prices can rise further, even to US$100 without affecting demand. Producers, Andurand said in the tweets, are afraid of peak oil demand resulting from the growing adoption of electric vehicles, and this is stopping them from investing in more new production. "So paradoxically these peak demand fears might bring the largest supply shock ever," Andurand said.

The hedge fund manager believes that crude oil should trade at more than US$100 a barrel to stimulate this much needed, in his view, investment, notably outside the United States where it is obvious that E&Ps are faring well with production growth even at current oil prices. Related: Venezuela Offers India 30% Discount On Oil...If It Pays In Cryptocurrency

It might be worth noting, as Bloomberg did, that Andurand’s fund posted a 10 percent decline in returns over the first two months of the year on the back of the seesaw in oil prices.

Most observers of the oil industry seem to be in disagreement with Andurand’s bullish views. After almost three years of cheap oil that spurred more buying from the largest importers in the world, a sharp price rise is likely to have an impact on every economy, especially oil-dependent ones, and this effect is unlikely to be in the form of higher oil demand.

In fact, some believe that the big winners from higher oil prices will be renewable energy and electric cars—especially the latter—as production costs there fall, and this makes them more competitive with ICE cars, even preferable in certain circumstances, possibly even bringing about that peak demand that E&Ps are so afraid of right now.

Please feel free to join the discussion on $300 oil here.

By Irina Slav for Oilprice.com

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  • Jeffrey J. Brown on May 02 2018 said:
    Pierre Andurand was one of the few analysts who started to take a bearish position on crude oil in 2014, which turned out to be highly profitable for his hedge fund.

    He turned bullish on crude oil in early 2016, and monthly Brent crude oil prices have risen an an annualized rate of about 40%/year since hitting the monthly low for this cycle of $31 in January, 2016.
  • Neil Dusseault on May 02 2018 said:
    Okay...these headlines are getting more and more absurd.

    "Could Oil Actually Hit $300?"

    Case-in-point: Consider this as a headline:

    "Could Oil Actually Be $5?"

    That last headline was made up by me, of course, but if you find that insulting or outrageous and yet are not bothered by the "$300" headline then there is clearly a double-standard of hypocrisy.

    I mean, the numbers just keep going up and up: $40, $50, $60, $70, $80 - $100, now $300...Well, trust me when I tell you that before we go back to $147/bbl on WTI there will be serious conflicts, let alone $300.

    The world cannot sustain high oil prices, therefore abandoning everything to do with oil from energy, to plastics, to lubricants will all be a reality long before then. Oil is not a necessity of life. Once and for all, no one is born into this world owing any oil producer or bullish hedge fund manager anything.
  • the masked avenger on May 02 2018 said:
    The economy would simply shut down.
  • Mamdouh G Salameh on May 02 2018 said:
    Oil is the blood of the global economy. As such it is priceless. Still, we need to allocate a price for it to enable global oil transactions to take place.

    How high could oil prices rise is determined by market fundamentals, global investments and the determination of oil producers around the world to maximize the return on their finite assets.

    According to the IEA, global investments amounting to $41 trillion are needed between now and 2040 to develop energy resources so as to meet global demand by then.

    Market fundamentals are of prime importance. The current positive fundamentals could easily support oil prices ranging from $75-$80 a barrel. To go higher, both global economic growth and global oil demand should reach almost double the current levels, meaning that global economic growth should rise from the current 3.9% to 5% and global oil demand should grow at double the current range of 1.7-2.0 mbd.

    The third factor is what I have been advocating that oil producers around the world should aim to maximize the return on their finite assets to whatever level the global economy permits them.

    In the absence of enhanced global investments as mentioned above coupled with rising global oil demand at double the current rate, we could certainly see oil prices at least hitting $145-$150.

    Still, I have calculated that a fair price for oil ranges from $100-$130 a barrel. Such a price is good for the global economy as it enhances global investments, provides a good return to oil-producing nations to enable them to expand their production capacity and also enables the global oil industry to balance its books and expand future investments.

    And while a wider use of electric vehicles (EVs) may help decelerate the global oil demand and oil prices, oil will continue to reign supreme throughout the 21st century and far beyond. A post-oil era is a myth.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Biff Turk on May 02 2018 said:
    I can’t wait for the new 8 seat electric SUV’s capable of traveling 1,000 miles in a day. That will really end it for the oil producers destroying the environment.
  • rjs on May 02 2018 said:
    you'll get demand destruction at $100 and a global economic crash long before $300...
  • Tpm on May 02 2018 said:
    Change seems to be happening so fast in the energy world. Even while oil has been cheap. I can't even imagine what $300 dollar per barrel oil would do to accelerate change, especially away from oil. I have to believe that $10. per gallon gasoline would park a lot of cars and close a lot of refineries. Could be very ugly.
  • citizen oil on May 03 2018 said:
    So, this is a tactic used by many analysts to get their name noticed . Just put out the most outrageous figure out there and get your name and company name free advertising. Pierre Andurand is laughing at the media that it's actually working. The same happened at the low end . Remember calls of $ 10 oil ? LOL . You guys fall for this every single time. I'm going to write an article about $ 1000 oil and everyone will know me. Yikes. $ 300 oil will result in $ 30 oil in two months when the economy collapses.
  • David on May 04 2018 said:
    I don’t see 300 dollar oil happening anytime soon without substantial worldwide carbon taxation (my guess is a tax of 50-100 dollars might be able to do this). Without taxation, if prices go higher, the USA will pump itself silly under the current regime which will probably help take some of the edge off as prices drift higher. Beyond this administration though things could look different. Assuming the next president is a Democrat, it’ll probably mean intense action on Climate Change. Much more so than what would have been if this current administration had never happened. I definitely expect an overreaction. Normally, unilateral actions to force an issue are ill advised since they foster disfunctionality but at this point it might not matter as much, that ship has long sailed, in fact it did so the day this president took the podium. In short, it’s not too outrageous to expect the next democratic president to push for substantial taxes on CO2 emissions and to do this on a worldwide scale. Maybe the GOP and their oil industry sponsors can mitigate actions at home but they will be harder pressed to stop this movement throughout the world, especially since we can expect climate change effects to become more pronounced as well as better understood over the next 4-8 years.

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