Art Berman, a petroleum geologist ans Zero Hedge come together in a great article.
The main focus in on how the legalization of US oil exports have “changed the game” for global oil exports, but old models like inverse correlation between inventories and prices still apply.
Here’s a short excerpt:
“For Berman believes that, even though the price of oil has nearly doubled since June, the commodity has a long way to climb as accelerating economic growth and coordinated production cuts more than offset the impact of US exports and the booming shale industry in the US and Canada.
Berman explains, using slides from his latest chart deck, how OPEC’s response to the growing threat from the North American shale industry has been the dominating factor in energy markets since 2014. By reducing production, OPEC has shifted the WTI futures curve from Contango to Backwardation – a strong signal that prices will continue higher.
As Berman explains, according to his model, prices are nearing their five year average. His models says WTI should hit between $70 and $75 if inventories fall another 10 million barrels. The series of drawdowns in the US – including a massive 11.19 million barrel crude drawdown last month that registered as the biggest drop since September 2016 – though there’s definitely a limit to how much US exports will contribute to this trend.”
After reading the article, leave a comment below on your thoughts. Do you think WTI will hit $75, and what does that do to capital investments, new projects and labor in the industry?
