May 26th, 2015
If you still doubt that geopolitical heat can raise the price of oil, I strongly advise you to carefully watch the events that are about to play out.
At the top of my own list is Iraq. Geopolitical matters there continue to worsen. U.S. Secretary of Defense Ashton Carter has just called out the Iraqi military – during a high-profile TV interview no less – claiming that it lacks the will to fight. ISIS is solidifying positions within marching distance of Baghdad. And the main Iranian general is condemning the U.S. for “not doing a damn thing” to halt the ISIS advance.
These three developments will have an impact on global crude oil stability and are thereby certain to affect oil prices.
But a fourth situation is about to unfold… with the potential to have a more direct effect on oil.
Here’s my take on what’s going on in Iraq… and what it means for energy prices…
May 19th, 2015
The overall trajectory for oil prices remains upward, despite taking a breather today. I still see prices reaching $65-68 for West Texas Intermediate (WTI, the benchmark traded on the NYMEX) and $73-78 for Dated Brent (the other major benchmark set daily in London).
But this is hardly going to be a straight, linear rise. Rather, it’s going to occur in what I call a “ratcheting” pattern: occasionally jerking downward along the way.
One of the primary concerns causing some of the sudden drops in oil prices is the impact of excess production.
The traditional belief has been that downward prices discourage forward commitments of capital expenditures, thereby reducing supply and more closely associating prices with demand.
Operating companies have been slashing the financing of new wells, and the number of rigs in the field are now down to levels not seen since the credit crunch. So we should have seen a corresponding drop in production.
That’s not what happened.
Just take a look at this chart…