There is a lot of the stuff sloshing around....MORE
Throw in the geopolitical angles (US/EU v. Russia; Saudia v. Persia) and a bit of downside protection may be in order.
Plus, we've been calling for it since $106-107, seven months ago and frankly I'm getting tired of the répétition, know what I'm sayin'?
Apparently contradicting the 'sloshing around' statement is the forward curve for WTI, currently in pretty steep backwardation from May 2014 at $101.67 to June 2016 at $84.73. That's a simplistic view however and does not account for above ground oil entangled in financing deals (Hi Izzy) and in situ storage. Remember July 4, 2008?
Oil began its historic decline from the previous day's all time high with the curve backwardated.
From Barron's:
Lower energy costs will have a salutary effect on the U.S. economy. Not so Russia, where oil provides 50% of government income.
The long-term outlook for global oil prices is lower, perhaps much lower, giving a strong boost to the U.S. economy while potentially crippling the economy of Vladimir Putin's Russia. Vast new discoveries of oil and natural gas in the U.S. and around the globe could drive the oil price to as low as $75 a barrel over the next five years from a current $100.
The demand side, too, will put pressure on the supremacy of petroleum. For the first time in its 150-year history, the internal combustion engine can be run efficiently on alternative fuels from a number of sources, including natural gas. As these alternatives are increasingly introduced, global consumption of oil will slow its growth and flatten out.
Citigroup's head of global commodity research, Edward Morse, believes the combination of flattening consumption and rising production should mean that "the $90-a-barrel floor on the world oil price over the past few years will become a $90 ceiling." Within a new trading range with a $90 ceiling, Morse sees an average of $75 as plausible.
That's a far cry from the old paradigm, promoted in the past 40 years, which posited ever-greater demand for petroleum as developing economies grew, and a slowdown on the supply side -- the looming prospect of "peak oil," whereby global production maxes out and falls into decline. To the contrary, unconventional sources of crude oil totaling more than a trillion barrels -- the equivalent of more than 30 years of extra supply -- have been discovered in the past five years. The majority is recoverable at $75 or less, and much is now being tapped.
Within the next five years, growth in U.S. production of oil should make this country a net exporter, ending a pattern that has persisted since World War II. "While this country will still be importing plenty of medium and heavy crudes, most of the imports will come from Canada and Mexico," says Morse. "So the U.S. will no longer have to worry about disruptions in supply that might disrupt economic activity. That's why we call it the era of North American energy independence."...
Also ungated at Barron's:
