Price Retreat Possible | Russell T. Rudy Energy LLC
“Rigzone” reports that some industry analysts fear that the oil price recovery is running out of steam, and we might be faced with a reversal. In the first half of this year, falling domestic output, supply disruptions overseas, and rising demand enabled prices to flirt with $50. Now, as the U. S. rig count is increasing, foreign sources of crude are coming back on stream and demand seems to be faltering.
The consensus seems to be that the worst is behind us, but the International Energy Agency warns that the road ahead could be bumpy. Worldwide crude inventories remain distressingly high. There is a surplus of gasoline in the U. S., and storage on tankers at sea is the highest it has been since 2009.
Canadian oil sands production has recovered, Libya is on schedule to resume exports this month, and Nigeria seems to have restored some output. Harry Tchilinguirian, head of commodities research at BNP Paribas, observes that “Unplanned supply-side factors brought the market near balance in the second quarter, and it is again supply-side factors that will hinder that balance in the near term.” Based on this, he opines that prices could fall to $40 or below.
Analysts at UBS Group express concern for oil prices as a result of the Brexit. Julius Walker, senior consultant at JBC Energy in Vienna, feels that “When the macro dust settles, which might take a while, it will become apparent that oil fundamentals are weaker than many realized.”
However, Mike Wittner with Societe Generale thinks that the broadly held perception is that the global market is balancing and this will prevent a drop to previous lows. In fact, he concludes, “I think there is a point where you see some bargain-hunting coming, and that point is $40 a barrel.”
To read the article in its entirety, please go to http://www.rigzone.com/news/oil_gas/a/145672/Faltering_Oil_Recovery_Prompts_Warnings_of_a_Relapse_to_40/?all=HG2 .
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