Thursday , 25 July 2024

Crude Oil Could Hit $105 a Barrel in the Next Six Months – Here’s Why (+2K Views)

Less Supply & Higher Demand Mean Ever Higher Oil Prices 

A bunch of bobble-heads and tongue-waggers are saying that the recent decline [in the price of crude oil] shows the top is in… [for] this year. Sheesh, gimme some of what they’re smokin’! Words: 1215

So says Sean Brodrick ( in an article* which Lorimer Wilson, editor of, has reformatted and edited […] below for the sake of clarity and brevity to ensure a fast and easy read. (Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.) Brodrick goes on to say:

Yes, crude oil prices went down, skidding along a slope greased by an announcement from Saudi Arabian Oil Minister Ali al-Naimi, who signaled OPEC may increase supply to keep prices lower. Mind you, this is only a week or so after other OPEC spokesmen said they saw no problem with $100 oil. If you’re confused, that’s part of the plan. I believe OPEC likes to keep us guessing.

Short-term Factors Favoring Higher Oil Prices By Mid-Year

[In addition, while] the long-term forces that should push oil much higher remain in place, [I put forth below four] short-term developments [that should cause] higher oil demand in the United States and around the world in the first half of this year – at least – and see oil at $105 a barrel in the next six months.

1. Rising Global Demand. Many people missed what else al-Naimi said — that OPEC believes worldwide oil demand should increase by as much as 1.8 million barrels a day (bpd) in 2011. This is higher than the OPEC growth forecast made just two weeks ago [and higher than the 1.47  million bpd that] our own Energy Information Administration expects.[In addition,] the International Energy Agency has its own forecast. [While] none of the [aforementioned] agencies agree on just how much oil demand will climb this year they all agree on one thing — global oil demand is going up fast!

2. Americans Are Driving More. The miles driven in the United States are going up again. According to the Department of Transportation, vehicle miles driven in November were up 1.1% compared to November 2009 …

U.S. Vehicle Miles, Moving 12 Month Total, All Roads
Source: Calculated Risk

We have yet to get above the 2008 peak, but we’re on the road higher. Where are Americans driving? [Hopefully] to the mall.

3. Consumer Confidence Jumps. The Conference Board reported its consumer confidence index was at 60.6, up from 52.5 in December. This month’s reading is the second-highest since the recession officially ended in June 2009. The only higher reading was 62.7 in May 2010 — just before the economy hit a slowdown that persisted into early summer.

Consumers are feeling more confident because the job picture is finally starting to improve [and,] assuming consumers are right and we aren’t in some kind of economic fake-out, the U.S. economy is improving. In the past, that has been coincident with rising energy demand… [With none of the big global agencies — the IEA, OPEC or EIA — expecting much oil demand growth in the United States just maybe we’ll play catch-up with the rest of the world.

4. Stronger Global Economic Growth. The International Monetary Fund (IMF) says the global economy grew faster than expected in 2010 [and it has] just raised its forecast for global economic growth for 2011 from the 4.2% it projected just last October to 4.4%. China and India are expected to lead the way, with GDP growth of 9.6% and 8.4%, respectively, but it is not expecting a lot of growth in Europe. It may be underestimating the euro zone, [however, because] ndustrial orders in the euro area increased 1.9% in November from the previous month, when they gained 1.4%.

Longer-term Factors Favoring Continually Higher Oil Prices

These forces include a) a surge in car ownership and oil demand in India and China, b) the long-term decline in existing oil fields, c) a potential catastrophic decline in Mexican oil production and d) a steep drop in exploratory drilling in the U.S. Gulf of Mexico.

Speaking of the drop in U.S. offshore oil exploration, here’s another chart for you: U.S. production of crude oil.

Annual U.S. Field Production of Crude Oil
Source: EIA

That sure looks like a slippery slope. The secondary peak in this graph is Prudhoe Bay coming into production. That was in the 1970s. Despite three more decades of searching, we haven’t found another super-giant oil field in the United States, and we’ve found precious few around the world.

Bakken Shale Oil

Shale oil is very interesting. Analysts from Raymond James report that crude oil from the Bakken Shale in North Dakota’s Williston Basin will hit nearly 1.2 million barrels a day, or 15%, of U.S. output by 2015 – but that’s really not a lot of oil when the United States uses 19.1 million barrels a day. [Be that as it may] I have made some recommendations on how to play it in my new report “Burning Oil: 7 Winners in the Next Energy Boom” [which I encourage you to read].

Canada’s Oil Sands

Canada has vast deposits of oil [of which] nearly all its estimated 178 billion barrels of reserves are in oil sands. It’s an ecological nightmare to extract oil from sand, and the difficulty limits production.

[While] the United States is [currently] the major export market for Canadian crude oil the Chinese want it – and they probably can get it. The Canadian National Railway is in talks with Chinese companies about possible exports of crude oil produced in Saskatchewan – with recoverable reserves of 1.2 billion barrels – via railway to a port on Canada’s west coast and last year China’s Sinopec bought a 9% stake in Syncrude, Canada’s largest oil-sands project, while China Investment Corp…. bought a 45% stake in an oil-sands project owned by Penn West Energy Trust.

What are we going to do if China starts exporting large amounts of Canadian crude? Invade Canada to protect “our” oil? Are we going to claim those sneaky Canadians are hiding weapons of mass destruction in their mukluks? I don’t think so! [Don’t forget that] China has all the money it needs to buy as much Canadian oil as it wants. After all, we ship China more of our money every day.

Crude Oil Chart Points the Way Higher

[As mentioned above,] the long-term picture looks down-right desperate and the short-term could see a surge in global demand, squeezing oil prices much higher. [Let’s take a look at the latest] weekly chart for crude oil.

Crude Oil is trending higher.

You can see from the above chart how crude has trended higher, pushing above overhead resistance, and is now coming back to test that former resistance as support. Maybe the bears are right … maybe crude oil has topped out… but the chart sure looks more bullish than bearish.

I think it’s a signpost on the road to higher prices [with $105 per barrel by mid-year being just the short-term target to ever higher prices].


Editor’s Note:

  • The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
  • Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.
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