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Friday, February 13, 2015
Oil prices saw a rebound on Thursday for both US March crude futures and March Brent futures, both closing up $2 or more, and while the official numbers for Thursday’s OPEC basket price are not in, it has been on the rise since the start of February. Although the slight rise is good news, it is not big enough to change the opinions of the doomsayers in the Western world and Pollyannas in the oil producing Middle East.
Recently Citigroup claimed that oil prices would be dropping another $30 per barrel, hitting $20 per barrel mark; the group said in a report on February 9 that this small rally crude has seen is a “head-fake,’ and $20 per barrel may soon be on the way. While not everyone agrees with the $20 per barrel mark, most industry experts in the West say it will be sometime, at least H2 2015 or longer before prices begin to rise.
On the other side of the oil price equation are the producers of OPEC who believe the market will straighten itself out tout de suite. Some Middle Eastern players contend that prices could hit $200 per barrel if investments are not made into new supply. This came from OPEC Secretary-General Abdalla El Badri, in an interview with Bloomberg in late January. The OPEC Secretary-General makes a valid point as companies all over the globe have been cutting their capex budgets left and right however, the closer prices get back to pre-slump levels the more shale producers in the US and elsewhere will get back to business, ascertaining that $200 per barrel will not happen in the foreseeable future.
There are some other variables that could play a role in seeing the price of oil rise, like uncertainties in some of the world’s producing countries. The situation in the Middle East is ever changing and one thing from the past that we know, any blip in the security of these mega producers and the price will rebound a bit. While the rebound will not immediately bring it back to the $100 per barrel plus mark it will turn it in the right direction. Between Al Qaeda and ISIS, one never knows when the next oil field could go up in smoke cutting supplies. There are also uncertainties in Venezuela and Libya; while Libyan production has pretty much been off the market for some time but the possibility of violence spilling over into neighboring producers Algeria and Egypt exists. Venezuela is still pumping away at a rate of roughly 2.5 million bpd but that could change as the country’s political scene is volatile at the moment. Venezuelan president, Nicolas Maduro Moros, is in the middle of an economic crisis and facing intense opposition against his administration.
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