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Where will oil prices go?

Factors that speaks for falling oil prices:

  • Falling demand from China, Brazil and Russia because of lower growth.
  • Falling demand from OECD countries because of lower growth and a higher share of alternative energies.
  • Rising daily supply from Iran and rumors, that they have 30 million tonnes of oil loaded on large supertankers, ready for export.
  • Continued high supply from US oil companies because of pressure from banks to provide cash flow to reduce debt.
  • Saudi Arabia continue full production to protect market share. They have lately increased the domestic tax on fuel - maybe ​​a sign for preparation of a longer period of low oil prices.
  • Russia continue full production to reduce the domestic deficit.

 

Factors that speak for rising oil prices:

  • Oil prices have fallen more than 80% from the peak in 2008, more than any other asset class.
  • Declining production from OECD Countries, as new and smaller producing wells are not commercial viable at current oil prices. The number of new drilling rigs in USA has also dropped sharply.
  • Declining production from existing wells due to depletion. For example, production data from the North Sea and from Mexico has shown heavy decline in recent years - even at higher oil prices.
  • Initial signs from Russia to initiate in dialogue with OPEC in order to reduce production.
  • Rumors that several Western oil companies will repurchase own debt rather than drilling new wells. It is estimated that up to 26 billion US dollars of issued bonds are more attractive for repurchase than using capital for new drilling.
  • Global demand continues to rise even at a low global economically growth. Especially demand from India is expected to pick-up sharply.

 

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