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Oil Is Unlikely To Go Much Higher

Oil Is Unlikely To Go Much Higher

Oil prices have climbed throughout…

Oil Climbs As Fears Of Negative Prices Fade

Oil Climbs As Fears Of Negative Prices Fade

West Texas Intermediate (WTI) crude…

Haley Zaremba

Haley Zaremba

Haley Zaremba is a writer and journalist based in Mexico City. She has extensive experience writing and editing environmental features, travel pieces, local news in the…

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How Oil Prices Could Go To $100

“We’re in a deflationary moment that surpasses anything seen in most people’s lifetimes,” proclaimed a New York Times byline on Tuesday, the morning after oil prices went negative. The West Texas Crude Intermediate benchmark plummeted to previously unimaginable depths, closing the day at negative $37.63 per barrel.  The novel coronavirus has wreaked unprecedented havoc on the global economy, shutting down entire industrial sectors and bringing countries across the world to a halt as the global community shelters in place to slow the spread of the COVID-19 pandemic. Economists have warned that the fallout is going to be the largest economic downturn that we have seen in our lifetimes, but few could have foreseen the absurdity of negative oil prices. 

Few, but not none. Three weeks ago, on April 1, CNBC published a report titled “Oil prices could soon turn negative as the world runs out of places to store crude, analysts warn,“ which predicted exactly what is happening now. “Global oil storage could reach maximum capacity within weeks, energy analysts have told CNBC, as the coronavirus crisis dramatically reduces consumption and some of the world’s most powerful crude producers start to ramp up their output.”

While the situation is totally unprecedented it’s impossible to say what will happen next for oil markets, some experts think that oil is poised for a major comeback. Even though oil prices are lower than they have ever been, “one energy fund thinks $100 a barrel is achievable,” reported the Midland Reporter-Telegram earlier this week. At the time of the report, oil was only at an 18-year low rather than an all-time low. The article intro continued:  “But first, prices need to fall even further.” Well, they got their wish. 

As oil prices have tanked over the past two months, “Westbeck Capital Management’s Energy Opportunity Fund climbed 20.2 percent in March after declines in the first two months of the year, according to an investor letter. That puts the commodities-focused fund up 3.7 percent in the first quarter after U.S. oil futures cratered 66 percent -- their worst quarter ever,” reports the Midland Reporter Telegram. “The fund, which gained 40 percent last year shorting U.S. shale companies, has turned its attention to oil tanks filling up at various points around the world, particularly at the biggest U.S. hub in Cushing, Oklahoma. With too much oil and not enough places to put it, Cushing may reach storage limits by mid-May, a market dislocation that could portend the next leg of a price rout.”

Related: How Much Longer Will Indian Oil Demand Slump?

This all points to a huge comeback for oil prices. As the world rushes to scale back oil production, they are setting up a bull market for the future. “When we are on the other side of the pandemic, we think oil demand will normalize very quickly. And next year, we could even see unprecedented inventory draws and the world quickly running out of spare capacity,” Westbeck Chief Executive Officer Jean-Louis Le Mee told MRT in an interview. 

“That rout will mean more U.S. shale producers will have to throttle back output, some of which could be permanent, [...]. The shut-ins, coupled with a recent deal by OPEC and allied members to curb production, could set the stage for a price rebound in coming years.”

U.S. shale had already been in serious decline as West Texas wells aged and the gush of the shale revolution. Now, with the oil price crash, the Permian Basin has been burdened with bankruptcies and tens of thousands of fired and furloughed employees. So when we are able to return to business as usual, there will likely be a shortage of spare capacity. Low supply, high demand. That’s how these things work. Keep an eye out for $100 barrels coming down the pike.

By Haley Zaremba for Oilprice.com 

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  • David Messler on April 23 2020 said:
    We could use some $100 oil. It's been a while.
  • Goto Afterburners on April 23 2020 said:
    The story is laughable. You state that we'll run out of capacity and that will trigger $100 oil. Do you understand how quickly these companies can bring a shut-in well online? Do you understand WHY oil went from $90 down to a "normalized" $45 - $60 range? It was because the US shale producers are able to spin up wells quickly and frack at a high rate. The producers are lowering the cost to produce right now and are getting into the $25 range, which even $40 oil certainly sustains.

    Bankruptcies will only transfer assets from the losers to the winners. Please learn the business before creating these "wow, let me grab you with my unrealistic headline" pieces.
  • Adam Shame on April 23 2020 said:
    Is this not alarming evidence about just how arbitrary oil prices are? We have countries still producing oil at historic lows? Why is it that oil has to be $100 a barrel and your average consumers has to pay over $1 a litre for gas at the pump in Canada and similar or higher prices elsewhere. Ultimately I see this as a problem of greed and the expectation that one should extract every penny of profit available off the backs of the average consumer. Our governments allow this due to the money fed into politics by these lobby groups. The glaring availability of the supply of oil should open the eyes of consumers and governments that gouging citizens at the pumps need to end.
  • Mamdouh Salameh on April 23 2020 said:
    If anything, the coronavirus outbreak with its destructive power of both the global economy and the global oil market has proven irrevocably how inseparable oil and the global economy are by demonstrating that destroying one automatically destroys the other and vice versa.

    We don’t need to go further than Newton’s third law: for every action, there is an equal and opposite reaction to realize why oil is poised for a major comeback.

    Despite the exceptionally dire situation in the global oil market, the global economy and China’s in particular ill behave like a patient who has been quarantined with no food. Once out of the quarantine, his appetite would be rapacious and this is exactly how the global economy and the global oil market will react with oil imports doubling if not tripling to recoup lost demand. Oil prices and demand will recoup all their previous losses with prices event touching $50-$60 a barrel in the second half of this year. However, once prices hit $50-$60 they won’t stop there in accordance with Newton’s law.

    Oil is the driver of the global economy. Without oil, there is no global economy and no civilization as we know it. The global economy is made of three major chunks, namely global investments, the economies of the oil-producing countries and the oil industry all of which need relatively high oil prices to stimulate them. A fair oil price, in my opinion, ranges from $100-$120 a barrel.

    Furthermore, oil prices will get firm support in the long term from four pivotal realities. There will neither be a post-oil era throughout the 21st century and far beyond nor a peak oil demand either. Neither will be an imminent global energy transition from oil and natural gas to renewable energy for the foreseeable future. Oil and gas will continue to be the core business of the global oil and gas industry well into the future.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Michael Ocean on April 23 2020 said:
    Why would you ever want oil to come back? That is such a short sighted vision. This is a chance oil companies will never have again. Convert your energy and resources into RND of renewable energy. Enable, for the first time, to be the progress and vision that is ahead of the curve, instead of chasing a dead idea. Funding a sustainable future, will ensure a prosperous present. We have hundreds of years of history to prove that.
  • Kenneth Richner on April 23 2020 said:
    I cant wait till Pennsylvania drops the price of gas we still have the highest price in the nation!!! If I drive west I can get gas for half what the price is here but with the Covid 19 its not worth the risk!
  • David Chura on April 23 2020 said:
    We don't need 100 dollar a barrel of oil

    Us on the bottom of the scale are enjoying our freedom to travel with less expenses
    Let the CEOS give up their bonuses and ridiculous salaries so we can live without supporting their bad habits
  • robert merkov on April 23 2020 said:
    Oil companys have had their hands in the consumer pocket from day one, making billions a year. Now that the consumer is not using as much its hurting these companys? Boo hoo. Do you think these companys will carry the lose? Hell no the will jack up prices the minute this virus has passed. And they will make up thier lose and then some
  • jay elwood on April 23 2020 said:
    $100 is conservative, $160 is a better target from here... Feel free to confirm in the future once we are there. This is very obvious to good technical traders... not so much to retail or hedge funds though.
  • Norm Dill on April 24 2020 said:
    That will not happen, period. Oil will be lucky to ever go above $60 again.
  • rob adams on April 26 2020 said:
    I like the article - it brings up good topics.
    keep in mind when oil is needed even if wells can be brought online wuickly doesn't mean they will. oil producers are not stupid.
  • E.M. Shalev on April 26 2020 said:
    "Keep an eye out for $100 barrels coming down the pike."Well, in these strange times, supposedly anything is possible.  But let's look realistically at the 'post-COVID-19' world:1.  for the airline sector, is it reasonable to assume that tourism & business travel & family gatherings will return quickly to 'pre-COVID-19' levels?
    2.  for the ocean-cruising sector, given the bad publicity during the COVID-19 shutdown', is it reasonable to assume that ocean-cruising tourism will return quickly to 'pre-COVID-19' levels??3.  is it reasonable to assume that the electrification of transport - not only private vehicles, buses and trucks, but also railways, has stood and will continue to stay still for the duration of the crisis and the slow bounce-back after the crisis??? 
    4. is it reasonable to assume, that once oil passes 60 USD to the barrel, the shale industry won't spring back to life, even if under new ownership????5. is it reasonable to assume, the many new sites for exploitation, some for which development had commenced but were put on hold once the enormity of the glut became too obvious, will remain on hold? 
    6. is it reasonable to assume that the transition from oil to natural gas for energy generation, including energy for transportation, will freeze at the pre-corona levels?7. is it reasonable to assume that wave 1 of COVID-19 is the first and last wave to threaten global health?

    Well, if these and other wishful thinking assumptions about long-term viability of historically high price points are made, well yes, down the pike we will see oil at around $100 USD (though, take into account that the real value of the USD in post-corona economy is a matter of speculation at the moment).  And of course, that will assume that as many vehicles are entering the pike in the post-corona world as in the pre-corona world.  And don't forget to make the wish when you place your pulled wisdom tooth under your pillow for the tooth fairy. 
  • Bob Forbes on April 27 2020 said:
    Oil will come back with a vengeance like a coiled spring. You can see it about to explode. $100 to 150 Very likely. True they managed without oil for thousands of years. But they also wore bearskins, hunted what little animals remained, and carried spears and clubs, even sometimes they ate each other. They also died of the cold and usually didn’t live long lives. Take oil away and that’s where your heading. Say bye bye to your mobile phones and tablets.

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