Economist Liam Halligan says crude oil has gone into “bull market” territory!

Received from Douglas (Mick) Field
28 Aug 2016 at 1:00 p.m.

Message: Good summary here on the oil situation. Especially clear opening comment on the dependency on fossil fuels in the foreseeable future. But full article (warning: pay wall) also good on the situation re the economic battle for supply.

oil drums [sputniknews.com][sputniknews.com]

### telegraph.co.uk 27 Aug 2016 • 2:19PM
Why I’m sticking with my forecast of oil rising to $60 a barrel
By Liam Halligan
In the absence of a major financial meltdown, oil will end 2016 north of $60 a barrel,” this column stated at the turn of the year. It was a forecasting flourish possibly fuelled by one Christmas brandy too many. With just four months of 2016 to go, though, I’m sticking to my Yuletide view.
Attempting to predict the oil price is crazy. Yet no decent economist can afford not to. The world economy still revolves around oil –used in everything from transport and electricity generation to the production of plastics, synthetics and so much else. And for all the breathless talk about renewables, and the grim inevitability of growing nuclear dependence, we remain addicted to oil.
As recently as 2005, world crude consumption was just 84.7 million barrels a day. That’s since gone up to 95.1 million daily, a 12pc increase in just 10 years. And that rise came during a decade when global GDP growth was rather sluggish. Had the world economy not endured the 2008 financial crisis, and subsequent stop-start recovery, oil consumption would have grown even more. But still, for all the expansion of wind and solar, and endless hype about a “post-petroleum world”, oil consumption continues to rise relentlessly and that won’t change any time soon.
The oil price has surged this month, up from around $41 a barrel in early August to almost $52 last week, before falling back slightly. This 20pc-plus increase puts crude technically into “bull market” territory. This is striking, not least because from mid-June to the end of July, oil was in “a bear market”, having dropped over 20pc. Despite this summer volatility, though, the direction of travel is clear. Oil has been climbing steadily, if not always in a straight line, from its February low of $28 a barrel. This August rise in oil prices stems from market fundamentals on the one hand, and geopolitical speculation on the other.

Earlier this month, the highly respected International Energy Agency (IEA) published a report suggesting global crude supply will fall short of demand during the third quarter by nearly a million barrels a day. This projected deficit comes despite the fact that the Opec exporters’ cartel continues to pump like billy-o. Having traditionally restricted supply to keep prices high, Opec has over the last two years been doing the reverse, of course – flooding global markets with oil, lowering prices to squeeze high-cost US shale producers out of existence. Amidst record production by Saudi Arabia, Kuwait and UAE, total Opec output hit an eight-year high in July, up no less than 840,000 barrels a day on the same month in 2015. This Opec supply surge was more than offset, though, by the dramatic ongoing slump in output from producers outside Opec. Declines in the US, China, Canada and Mexico combined to push non-Opec production down by more than 1.1 million barrels a day compared to July 2015. […] If there is a deal in Algiers, and it binds with Opec holding together, and the Russians staying on board then my end-of year oil prediction, in the absence of a Lehman-style global meltdown, will almost certainly come true. Such geopolitical stargazing has helped push up oil prices this month. During the first week of August, short crude oil positions on the NYMEX, one of the world’s leading commodity exchanges, were at a 10-year high. A large number of traders, in other words, thought oil was set to fall back towards $30. That view has now been thoroughly trounced, with the resulting “short squeeze” helping to drive this latest 20pc oil price rise. Aside from speculation and diplomatic wrangling, though, there’s growing evidence of an emerging supply-demand deficit. Buried in the IEA’’s latest report is the significant observation that it expects a further 900,000-barrel reduction in non-Opec output by the end of this year. This Saudi-driven price war has seen global investment in oil exploration and field development cut by $300bn, some 41pc, since 2014. The “active rig count”–, the number of wells being pumped worldwide, is down 37pc. Before these trends are slowed, let alone reversed, oil will need to spend at least six months, and probably a year, firmly above $60 a barrel, if investors are to be convinced profits can be made, so persuading them to put serious money back into future crude production. Unless global markets crash, I say that year of $60-plus oil will be 2017.

Full article at http://www.telegraph.co.uk/business/2016/08/27/why-im-sticking-with-my-forecast-of-oil-rising-to-60-a-barrel/

● Liam Halligan (@LiamHalligan) – Economist/Writer/Broadcaster, Telegraph Columnist, BNE Editor-at-Large, Proud member of http://www.thehooligans.co.uk Locations: London, Saffron Walden, Moscow.

Posted by Elizabeth Kerr

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3 Comments

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3 responses to “Economist Liam Halligan says crude oil has gone into “bull market” territory!

  1. pb

    Crude today is about 30% of the 2008 peak of US$150 per barrel. Hardly bullish.

    http://oilprice.com/commodity-price-charts?1=&page=chart&sym=CL%2A1&domain=advancedmedia&sg=true&display_ice=1&enabled_ice_exchanges=&studies=Volume%3B&cancelstudy=&density=X&a=M

    You could hazard a forecast if we stuck by the principles of a free-market. Governments, finance groups, and their bought media shills appear to hold more sway over prices than demand. For now.

    Google “LIBOR scandal”. Google “Total social financing”. Google “quantitative easing”. Google “gold fix manipulation”. There is an attempt to hold a line. Can’t let mum’s and dad’s super plummet. This is not capitalism. More akin to collectivism. Price setting. You could handle the violent swings if it were real price swings. At every fix, we get misallocation of capital. The productive will suffer. And people will suffer in the end.

    Guessing which way commodities will swing a fools game. The principles of a free-market are as long forgotten as Arthur’s chivalry.

  2. Gurglars

    PB, your slip is showing!

    Whatever would make you think the share market would be played to Queensbury rules?

  3. pb

    And oil hits US$43 per barrel, as it falls out of the ugly tree.

    I had to look that up, Queensbury rules, nice. There’s days I yearn for the trappings of antiquity, the idea of Rome, The vir triumphalis.

    “Government is the great fiction through which everybody endeavors to live at the expense of everybody else.”

    Poor investment decisions. The cost will be borne by our progeny, and we will not be forgiven.

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