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Monday, August 24, 2015

What Happened to Rebounding Oil Prices?

From Bloomberg View:
In February, I predicted that crude oil prices would drop to $10 to $20 a barrel. At the time, the price of West Texas Intermediate was $54, down from $74 in November, when OPEC decided not to cut production in order to forestall further price erosion. And that was way down from the June 2014 price of $107. 
The price did fall further -- to $43 in mid-March. But then the marketbulls argued that oil was underpriced and headed for about $80, which was the global average cost to produce a barrel of oil. A rebound followed as bargain hunters rushed in. U.S. exploration and production firms raised about $11 billion in new equity this year. 
The oil optimists noted that earlier high oil prices, aided by low financing costs, had pushed up production, especially among U.S. frackers. Low prices, they reasoned, would curb production, especially since fracked wells tend to be short-lived and the cost of drilling new ones exceeded the depressed prices. But a funny thing happened on the way to $80 oil: The rally stopped dead in its tracks at about $60 in May and June, then slid to the current $42, a new low. 
Me? I'm sticking with my forecast of $10 to $20 a barrel. The logic behind that February projection still seems valid.
Read the reasoning behind that prediction by clicking here.

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