Here’s why oil could rise above $70/barrel, and why it’s low now

in Canada/Other News/World by

U.S. crude oil for September delivery settled up $1, or 2.3%, at $44.49 a barrel on the New York Mercantile Exchange, the highest settlement since July 21. Prices rose 6.4% this week.

 

 Brent, the global benchmark, gained 93 cents, or 2%, to $46.97 a barrel on ICE Futures Europe, the highest level since July 20. The contract rose 6.1% on the week.

No one needs to care what I say, and no one will care what I say, not Putin, not Trudeau or Obama, there is no way to predict exact oil prices, there’s too many factors in play.

There are far too many parameters and interests at stake, coming from the most different areas, fields and sides. Often even internally at country or company level.

Let me start with a question:

Is there a true real value we can put on oil?
what would it be? $20? $40? $50? $120?
If we can’t put there a “real value” than why is it fluctuating so widely, from extreme to extreme?

The answer could be simple or complicated, it’s a matter of how you look at it.
Geopolitical interest
government interest
regional interest
speculation
control
power
Aligned producers
non-aligned producers
offer/demand
global economical growth (or downturn)
new players/producers
Currency fluctuations
Currency “war”
new extraction Technics and costs
Now, where all this fluctuations lead? is it good or bad for the economy?

Depends of who we we referring to, depends on the short or long run. There’s always someone benefiting from one situation and the others and by consequence translating that in the chain.The ideal world? not to low, not too high. That would keep some essential goods as reasonable prices (fuel/energy and derivatives) and oil companies and the all oil industry running (meaning keeping jobs, investments and supporting all different sub-sectors of the economy).

Let’s look at current situation. Looking very superficially one would say it’s a good thing as Gasoline is cheaper. If gasoline is cheaper people will have more money to spend. More money to spend means more demand (of goods or services) therefore more distribution or transport and even more travelling, so in the long run might lead to gas price increase ( but lets enjoy it so far).Oil extraction costs in nowadays much more than in the past (we need to dig deeper and in more difficult areas than in the past). Oil price at current levels isn’t sustainable for many small producers (and depending on the regions) what might lead to bankruptcy (already happening in the US) as a sustainable oil price should be at $60 to cover production costs of those.

Some countries oil dependent are suffering hugely from the oil drop. They had to review their budgets on the very lower side and cut public spend in areas as education, roads, infrastructures. This leads to more unemployment and economies not growing or growing lower than expected.

So what’s the expectation? this year probably at $50. around 2017 probably at $70. The likelihood it goes above that is low, so expecting it to be above $100 as in the past isn’t very likely. But again, who was expecting that it would drop as it did in 2015? One world event, or circumstances and it all goes upside down.