Commodities & Currencies

(Houston)

Oil prices have done very well over the last several months. Prices have been rising at the pump, making producers happier and consumers less so. However, gloomier days may lay ahead. The IEA thinks US shale oil output may soon surge on the back of higher prices. If this happens, it would undue the supply reduction OPEC’s cuts have created and send the market downward. Additionally, it would likely lead to an unwind of OPEC’s cuts, as if they were maintained, the reductions would be disproportionately benefitting OPEC’s competitors.


FINSUM: Oil prices have been doing better, but that does not change the fact that world has a fundamental oversupply of oil. This is not a problem by any means, but is a factor that will weigh on prices for years to come.

(Houston)

Oil has been in a bear market for about three years. While it has not been consistent and there have been ups and downs, oil prices have been mostly stuck, plagued by oversupply. However, Citi thinks that paradigm is about to disappear, with prices rising to $80 per barrel. Citi says a host of geopolitical risks, including sanctions on Iran, broader Middle East tensions, and North Korea are three issues which will send prices higher.


FINSUM: We aren’t big fans of this prediction. Not so much because we don’t think oil could move higher, but because forecasting political risks is a hopeless exercise. Here is a different view: the OPEC agreement falls apart because the only producer it is helping is the US (which is not in OPEC), sending prices much lower.

(Houston)

Oil prices have largely faded into the background of market noise over the last couple of years. Prices have been relatively steady in the $40-$60 range for some time, and the market has stopped focusing on it. However, any big change in oil would immediately grab attention. With that in mind, Bloomberg has put out its oil forecast for next year. The forecast is for US prices to fall to and average $55 per barrel next year as US oil production hits new records. The big question is whether demand will be strong enough to devour all that new oil.


FINSUM: This could be another dangerous year for oil. US output will rise, which could break the back of OPEC’s coordinated supply cuts, which have effectively created a price floor for oil.

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