Monday, June 09, 2008

Oil Market Views & Updates

  • Jun 6: WTI crude oil for July delivery spiked US$10 to new all-time high $139.12/b on dollar weakness and Morgan Stanley forecast revision for oil to reach $150/b within a month. Near-dated crude oil futures move back into backwardation. Futures past April 2011 remain in contango.

  • Deutsche Bank, Lehman: Back in the double digits, forward prices had already reached point at which new supplies can be triggered. But now market at a point where higher prices won't generate more supply. For every US$100 million in new inflows, WTI prices increase by 1.6%.

  • Hussman: Contango implies commercial inventory to build up on stockpiling

  • New record price obliterates not only nominal high but inflation-adjusted high of US$100-111/b reached in 1981 (when Iran cut exports)

  • Schwab: We are not experiencing a demand shock. Lack of spare capacity to match supply disruptions exacerbates fear factor, driving speculation and frenzied hedging.

  • Thanks to fuel subsidies, real price not high enough to cut demand.

  • Upside risks: low inventories, higher cost of production (due to labor shortages, credit crisis, extraction of unconventional sources), growing demand supported by fuel subsidies, $ weakness, speculation, hedging.

  • Spike risks: weather, geopolitics.

  • Downside risks: recession bets, end of refinery maintenance, high inventories, Saudi output hike, fuel subsidy cuts, increased non-OPEC supply and refinery capacity.

  • Consensus estimate for avg WTI price in 2008 raised from US$76/b to US$112/b (BNP: $124; UniCredit, UBS $115; EIA: $110; Goldman Sachs: $108; Barclays $97.70; Danske $83.5; Standard Chartered Bank $82; Natixis $67.7). Goldman Sachs raised forecast for H208 avg oil price to US$141 from US$107 due to fundamentals and resource protectionism by oil producers. Boone Pickens predicts US$150.

  • Fed: Absent supply disruptions, it will be difficult to sustain oil prices above US$100 (in 2008 dollars) over next 10 years.
photos: Fahrani

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