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Could 'Rebalanced' Oil Be Heading Back To $70?

By Ellen R. Wald, Ph.D.CommoditiesApr 18, 2017 06:44AM ET
www.investing.com/analysis/could-oil-be-heading-back-to-$70-200183270
Could 'Rebalanced' Oil Be Heading Back To $70?
By Ellen R. Wald, Ph.D.   |  Apr 18, 2017 06:44AM ET
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Saudi Aramco CEO Amin Nasser spoke on Friday at an event in New York. He said that the oil market is “close to rebalancing between supply and demand.” He mentioned two key indicators of this: rising demand (on the scale of 4.5 – 5 million bpd) and “gently” declining global inventory and floating storage. According to Nasser, these signs indicate that the market is tightening and that supply and demand are drawing closer together.

Does this mean we are looking at $70 barrel oil in the near future? Could the price return to $100 a barrel by the end of 2017? Not so fast.

Nasser spent significant time discussing how Aramco views time and business cycles. As any long-term observer of Saudi oil policy will note, Saudi Arabia’s plans and strategies are based on long-range plans. They look at what will benefit the company, the royal family, and the country for decades and generations to come. He said, “Everything [Aramco does] is based on the long-term.”

The moderator at the New York event, the noted oil historian Daniel Yergin, seemed surprised as always, at Aramco’s business philosophy. He said to Nasser, “Its like you look at the world differently,” and Nasser responded, “We are always looking at the long term… we always invest based on the long-term. That is why our cost per barrel is the lowest in the world.”

When the world’s most powerful oil producer speaks, it is always important to listen. The market was not open while he spoke because of Good Friday. Serious investors probably paid attention. Nevertheless, what Nasser said offers little to trade on. Essentially, his point was that Aramco sees the market eventually stabilization and is operating with that knowledge. However, his statements do not provide any helpful indication of when we will see higher oil prices.

In other energy related news, U.S. lawmakers are concerned about an unusual and mysterious deal between Venezuela’s national oil company, Petroleos de Venezuela (PDVSA) and Russia’s Rosneft (MCX:ROSN). Apparently, PDVSA put up 49.9% of its shares of Citgo as collateral for a loan it received from Rosneft.

PDVSA is currently in danger of defaulting. Rosneft could potentially assume ownership of those shares in the Venezuelan owned, but American-based oil refining and distribution company, Citgo. This could give Rosneft a significant foothold in U.S. downstream operations, but it would likely have little to no impact on production.

Could 'Rebalanced' Oil Be Heading Back To $70?
 

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Could 'Rebalanced' Oil Be Heading Back To $70?

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Do Deikins
DoRight Apr 20, 2017 2:23PM ET
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Your 'in other news' items, Dr. Wald, are often more interesting than your primary subject, though those are also very interesting. Since Rosneft is under sanctions from the US, GB, and much of EU (the last I heard), how is that going to work? Those two are acting more like capitalists, than they are socialists. Or maybe Russia will just expropriate Venezuela! I am guessing they wouldn't have given it a second thought under President Obama, though they might hesitate under the current back-slapping and saber-rattling administration of the US.
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Charlie Hayden
Charlie Hayden Apr 18, 2017 9:08AM ET
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Not going to happen as long as US Shale drillers can make a profit art $40 a barrel. Plus the Permian drillers efficiency increases weekly as they learn the formations.
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Tony Mahomi
Tony Mahomi Apr 18, 2017 8:57AM ET
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I thing more realistic for the first will be $60-65 after this range is stable , we will see!
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