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Page added on April 16, 2018

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Oil prices are likely to collapse later this year

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Geopolitical tensions will keep oil prices elevated heading into the summer driving season, but the energy market could be on track for a tumble in the second half of the year, according to Barclays’ head of energy commodities research.

Benchmark oil futures hit more than three-year highs last week. Those gains were underpinned by strong demand for petroleum products and a steady drop in global crude stockpiles, but escalating conflicts in the Middle East have boosted the oil market in recent weeks.

Both the Brent and U.S. crude benchmarks posted their biggest weekly gains since July last week in the lead-up to a missile strike on Syria by the United States, France and the U.K. on Friday in retaliation for a suspected chemical attack.

The Syria conflict, which puts Western powers at odds with Russia and Iran, is not going away anytime soon, said Michael Cohen, head of energy commodities research at Barclays. An escalation there could precipitate an escalation in the Saudi-led war in Yemen, in Saudi Arabia’s restive eastern provinces or in Iraq during parliamentary elections next month, he said.

Also next month, President Donald Trump must decide whether to restore sanctions on Iran, OPEC‘s third-biggest oil producer.

“All of this is going to add to headline risk at the very same time that we’re gearing up for the driving season,” when demand for refined fuels like gasoline increases, Cohen told CNBC’s “Squawk Box” on Monday.

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Getty Images

“So in our view, we think prices are skewed to the upside this quarter, but we’re looking for a correction as we go into the second half of the year and into next year.”

A correction takes hold when prices for an asset fall 10 percent or more from a recent high. Brent was trading at $71.68 a barrel on Monday, off its recent high of $73.09, while U.S. crude was at $66.45, down from Friday’s peak of $67.76.

In a note last week, Barclays raised its second-quarter price target to $68 for Brent, but Cohen laid out the bear case for oil in the second half.

First, Barclays said the supply impact of renewed sanctions on Iran is being overstated and says the market has already priced in falling output from Venezuela.

Second, American oil production is consistently rising to record highs, despite U.S. drillers exercising more financial discipline.

Third, the supportive oil market backdrop in the first quarter of 2018 was partly due to one-off factors like severe weather that sidelined some U.S. oil supply.

Last and most importantly, Barclays said it expects the oil market will swing back into surplus in the final months of the year and remain oversupplied through 2019.

CNBC



21 Comments on "Oil prices are likely to collapse later this year"

  1. Duncan Idaho on Mon, 16th Apr 2018 9:03 pm 

    Actually, I think prices will increase later this year, or early next.
    Look at the data—-
    Shall we see?

  2. Outcast_Searcher on Tue, 17th Apr 2018 2:24 am 

    A correction doesn’t mean a collapse. This is click-bait headline nonsense, and that’s all.

    Note that they don’t even mention the ever-rising global crude demand which occurs anytime there is net global economic growth.

  3. Davy on Tue, 17th Apr 2018 4:56 am 

    “crude demand which occurs anytime there is net global economic growth.”

    Let’s call it Lack luster growth because much of it is malinvestment and bad debt unrealized and put to the test by a recession. We are now in a new normal where the world’s central banks cannot properly enter recessions without dangerous risk from the mountains of debt everywhere. The debt and equity markets and national budgets have now been rearranged so they are too extreme in relation to normals of previous conditions decades ago. Crude oil is different than other indicators like electricity which is stagnant in many places. Crude must rise because population is rising.

  4. tita on Tue, 17th Apr 2018 8:37 am 

    “Second, American oil production is consistently rising to record highs, despite U.S. drillers exercising more financial discipline.”

    Yes, but this was expected, medias talked extensively about it. In facts, January production decreased, and we don’t have data for February. If US production doesn’t rise as much as expected, this will push prices higher.

    Nobody is able to say if oil markets are going to be in surplus or deficit in the end of the year. It is even diffcult to tell it now. It is only guessing. It is anyway difficult to see a huge surplus that would lead to a price collapse. You would need the demand to slow, which is not exactly the dynamic now. But who knows?

  5. rockman on Tue, 17th Apr 2018 10:18 am 

    Outcast – Exactly: “A correction takes hold when prices for an asset fall 10 percent or more from a recent high…while U.S. crude was at $66.45.” At least they define “collapse”: oil prices decline to at least $61/bbl. Not a circumstance to go running around like your hair is on fire. LOL.

    Makes me wonder if the thread title was added by someone other the author.

  6. BobInget on Tue, 17th Apr 2018 10:45 am 

    kxviswan

    Kxviswan; guestimate for crude draw

    “Using 16.9 MBD for refinery run rate, 10.45 MBD for US production, 1.8 MBD for export and 7.9 MBD for crude import, I get roughly 2.45 MM barrels draw”.
    Inget’s comment:

    In fact, we won’t be seeing ANY draws for the balance of the year. (IMO)
    I’ll post the EIA repore here around 10.35 AM Wednesday.

    IF K’s strong research and my opinion taken out of my butt, oil prices are Not being driven by geopolitical unrest so much as actual demand and supply.

    Having said that, If Israel/KSA bomb Iran, there’s no telling. As PoO is moving up at a slow but steady pace, bombing Iran is less likely.

    Thousands, that’s thousands of Venezuelan oil workers have quit and are leaving the country.
    Soon Venezuela will not be producing enough crude to supply even shrinking domestic needs.

    Everyone, well almost everyone, ignores the Venezuelan situation and its missing 1.5 M B p/d exports. Venezuelan oil once powered Central America, CITGO and the Caribbean. No longer.
    That fact alone, forget the ME, record demand, assures oil prices won’t be coming down.

  7. Antius on Tue, 17th Apr 2018 12:29 pm 

    ‘Oil prices are likely to collapse later this year’

    This is probably true. We are after all heading into a recession.

    High oil prices are unsustainable, not because of abundant supply, but because of lack of affordability. Oil prices are dictated by the price that refiners are prepared or able to pay, which is in turn dictated by what they are able to sell product for.

    All commodities are facing deflation due to a combination of factors: Shrinking real wages and rising inequality in developed nations and ageing populations. Oil is an energy source. If it costs more than the GDP it creates, then it isn’t affordable to consumers as an energy source. As energy becomes less affordable, demand for all other commodities shrinks.

  8. Cloggie on Tue, 17th Apr 2018 12:39 pm 

    “Collapse”, the most overrated word in this century, still young.

  9. BobInget on Tue, 17th Apr 2018 12:42 pm 

    Here’s an item Russians are flogging.

    Iran strongly determined to fight for Golan Heights

    Pravda
    The Trump administration is looking for a replacement for the American military contingent in the north of Syria. If the United States agrees with Saudi Arabia, the situation in the south of the country will become a lot more intense as Iran and Israel stand on the brink of war. Does it all depend on Putin’s …
    Google Plus Facebook Twitter

  10. BobInget on Tue, 17th Apr 2018 1:01 pm 

    Antius,
    Recent US “Tax Reform” just passed is really a
    Tax Cut for Rich folks. By years end everyone will
    begin to feel cheated. A 1.5 Trillion $ ADDITIONAL
    deficit will be a wonderful excuse to cut spending
    on education, health care, Social Security etc but Not the Military. Since Democrats now control Congress, Democrats get blamed for raising taxes on working people.

    To avoid utter collapse it’s my belief, full employment, like a drug induced high we NEED even more tax cuts. Now, debt becomes unsustainable. Hyper inflation results. We try
    so called cyber ‘currency’. Then with oil prices
    matching over priced residential rentals, the world falls out of love with USD.

  11. MASTERMIND on Tue, 17th Apr 2018 1:24 pm 

    Bob

    You can argue and tell people that cutting taxes is stupid because it decreases the purchasing power of the dollar and costs you more money in the long run, but people won’t care they want their money now! American’s including the media and Republicans don’t understand how economics work.

  12. MASTERMIND on Tue, 17th Apr 2018 1:32 pm 

    New peer reviewed paper on Peak oil!

    Economic Consequences Of Peak Oil For The Major Multinational Oil And Gas Companies (Amate 2018)

    https://www.scribd.com/document/376611398/Economic-Consequences-Of-Peak-Oil-For-The-Major-Multinational-Oil-And-Gas-Companies-Amate-2018

  13. Duncan Idaho on Tue, 17th Apr 2018 8:34 pm 

    “Since Democrats now control Congress, Democrats get blamed for raising taxes on working people.”

    Not on this planet, Earth.
    After next November maybe.

  14. deadly on Wed, 18th Apr 2018 5:33 am 

    The price of oil fluctuates between 25 dollars per barrel all the way to 147 dollars. The chances of it falling are greater than any chance of rising. The deductive reasoning tells you that.

    Canada has to buy US light oil to work the Athabasca tar sands.

    The U.S. has been filling Canada’s condensate gap with light oil production from US shale formations, specifically in the Eagle Ford. Without U.S. imports of condensate, 1.2 million barrels of heavy oil and bitumen would be land locked in Canada and unable be moved through pipelines due to its viscosity.

    US light oil exported to Canada

  15. BobInget on Wed, 18th Apr 2018 8:33 am 

    Swiped off ‘Energy Investing’
    $100 oil is the topic;
    Adjusting oil price levels for inflation…

    I would use inflation of about 2% here annually as this is roughly the US inflation rate over the last ten years…

    So the formula for ten years would be 1.02^10 (to the tenth power) which is about 1.22 or a 22% adjustment.

    So in 2018 after ten years from 2017 then oil at 122 USD today would be equivalent to 100 USD oil in 2007.

    In this thinking – which is the way I am looking at it and I suspect Saudi economic leaders would think of it the same way – then if oil is at 80 or even a 100 USD in 2019 or 2020 this is not a price level which one would rationally expect should stop economic expansion or cause a crash in global industrial activity. Yes it is the higher side of the cycle but it is not like the Saudis should think they themselves can stop the cyclical nature of the oil industry…if that is even possible… As oil prices get higher however they will be working with OPEC and Russia to prevent an oil spike so look for them to add production but any such talks are premature at this point especially given the strong recency bias we are seeing – look at Citibank they are still calling for oil prices to be between 50 and 65 all the way to 2021 and just a tiny bit higher in 2022…

  16. BobInget on Wed, 18th Apr 2018 8:43 am 

    Duncan, my writing is getting worse.
    I know Democrats don’t control either house.
    I was trying to say the Democrats are being set up. To keep from defaulting, Taxes need to be raised, thereby blaming Democrats for Cutting
    social programs, so called ‘entitlements’ etc.

  17. Davy on Wed, 18th Apr 2018 9:17 am 

    “Swiped off ‘Energy Investing’ $100 oil is the topic; Adjusting oil price levels for inflation…I would use inflation of about 2% here annually as this is roughly the US inflation rate over the last ten years…”
    Bob, this is the 21st century of managed economies and currencies. We do not have normal price discovery nor normal liquidity since 08. Inflation and deflation are different today and both part of the economic landscape. The business cycle is repressed with interest rates and debt accommodating policies distort productive debt and bad debt. In regards to oil we have efficiency gains from technology. We have technological gains to the way we utilize oil in the refinery process. We have alternative energy coming on strong. We have significant deflation in various places in the world economy. We also have peak oil dynamics in operation with conventional oil and oil producing nations. I am not saying inflation is not occurring it is. In certain areas inflation is extreme. Often this extreme inflation is the result of the Ponzi central bank policies. These same Ponzi central bank policies are creating deflation and or the potential for extreme deflation if the global mountain of debt were to give away.

  18. BobInget on Wed, 18th Apr 2018 9:34 am 

    As promised;

    Summary of Weekly Petroleum Data for the Week Ending April 13, 2018

    U.S. crude oil refinery inputs averaged over 16.9 million barrels per day during the week
    ending April 13, 2018, 70,000 barrels per day less than the previous week’s average.
    Refineries operated at 92.4% of their operable capacity last week. Gasoline production
    increased last week, averaging 10.2 million barrels per day. Distillate fuel production
    decreased last week, averaging 5.1 million barrels per day.

    U.S. crude oil imports averaged over 7.9 million barrels per day last week, down by
    720,000 barrels per day from the previous week. Over the last four weeks, crude oil
    imports averaged about 8.2 million barrels per day, 2.7% more than the same four-week
    period last year. Total motor gasoline imports (including both finished gasoline and
    gasoline blending components) last week averaged 705,000 barrels per day. Distillate
    fuel imports averaged 103,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum
    Reserve) decreased by 1.1 million barrels from the previous week. At 427.6 million
    barrels, U.S. crude oil inventories are in the lower half of the average range for this time
    of year. Total motor gasoline inventories decreased by 3.0 million barrels last week, but
    are in the upper half of the average range. Both finished gasoline inventories and
    blending components inventories decreased last week. Distillate fuel inventories
    decreased by 3.1 million barrels last week and are in the lower half of the average range
    for this time of year. Propane/propylene inventories remained unchanged last week, and
    are in the lower half of the average range. Total commercial petroleum inventories
    decreased by 10.6 million barrels last week.

    Total products supplied over the last four-week period averaged over 20.8 million barrels
    per day, up by 5.7% from the same period last year. Over the last four weeks, motor
    gasoline product supplied averaged 9.4 million barrels per day, up by 0.7% from the
    same period last year. Distillate fuel product supplied averaged 4.2 million barrels per
    day over the last four weeks, down by 2.0% from the same period last year. Jet fuel
    product supplied is up 5.3% compared to the same four-week period last year.

  19. BobInget on Wed, 18th Apr 2018 9:44 am 

    Demand is higher, for this time of year, than my failing memory.
    EIA – TOTAL stocks down 10M – crude down 1.1M nice gasoline & distillate draw (3M each) – Demand, huge

    Cushing down 1.1M
    PADD 3 down 1.5M

    Product Supplied is 21.8 M bbls/day

  20. Boat on Wed, 18th Apr 2018 10:29 am 

    Mm

    Your new study is trash.

  21. MASTERMIND on Wed, 18th Apr 2018 10:43 am 

    Bed Bath & Beyond is in serious trouble

    http://money.cnn.com/2018/04/18/investing/bed-bath-beyond-standard-poors-downgrade/index.html

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