Sunday, March 8, 2015

Economy: Oil $60 - Bottom Or Ceiling?

(Drivebycuriosity) - It seems that the recent sharp oil price rally has come to a stillstand. Since middle of February the price of Brent Crude, the gauge for global oil prices, is hovering around the mark $60. The rally from $48 to $63, a plus of around 30%, which had started late January, didn`t continue - so far.

There is tug of war now (driveby). Many hedge funds and other speculators are betting that the oil price had found a bottom at $60 and could rush back to the old heights. They refer to the v-shaped recovery of the year 2009 as oil prices jumped 70%, followed by a plus of 20% in 2010.

Others refer to the global oil glut and to the extremely high stock piles of oil which are still steeply rising. Last week the US oil inventories jumped to new record highs, fueled by a rising US oil production, even that number of US oil wells is shrinking (bespoke). It looks like that the US is soon running out of storage (market).

I reckon that the oil price is close to a ceiling. Oil costs still 3-times of what we had to pay before the year 2002. Expensive oil is curbing oil demand (demand destruction) and the costs of oil exploration are falling (seekingalpha). Therefore the oil glut will not disappear soon. I think soon the price of oil has to fall way below $50 to clear the over supply.

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