Americas News
More Predictions of Oil Range Bound at $50-60, With Resurfacing Fears of a Slide to the $30s
The question of whether oil will remain range bound in the $50s as many believe or defy the odds and climb higher was raised again last week when Jonathan Bell, chief investment officer at Stanhope Capital, said the Organization of the Petroleum Exporting Countries (OPEC) production cuts "are doing what they should be doing" by placing oil at the $50 mark.
He told Bloomberg that while oil stocks "at three decade high levels" should be "pushing the price down", OPEC succeeding in its compliance of cutbacks should provide a floor of $50, "and the risk is if the price goes higher if demand picks up or production in the U.S. doesn't pick up sufficiently."
Similarly, Peter Coleman, chief executive officer and managing director for Woodside Petroleum, told Bloomberg that trading over the next 12 months will be range bound, but with a floor of just under $50 and a high side of about $60: "Longer term, over the next two to three years, you'll see that rebalancing coming to the market and gradual growth."
He added that for the time being there will be "a tug of war" between OPEC and the U.S., as the former tries to maximize the impact of its oil production cutbacks and the U.S. offsets this objective by increased drilling.
Contrasting this opinion somewhat is Geraldine Sundstrom, managing director and portfolio manager at Pimco Europe, who also told Bloomberg that maintaining $60 oil "will be quite complicated" because of the ability of U.S. shale producers to resume production so quickly in reaction to price increases caused by cutbacks elsewhere in the world.
She said, "So I think where the levels we are at now, between $50 and $60, is where we're likely to remain for the foreseeable future.
"The strong global economy of course is keeping up prices, and that's good news, but we'll also have to see what will is happening with OPEC and their ability to comply with their promises."
Perhaps amused by the sheer volume of analysts gazing into their crystal balls to forecast oil's future, Bloomberg in a February 24 story titled 'Five Things We Learned This Week' noted that the number one thing it learned is that people are even talking about $30 oil again, quoting an Amro Bank economist who said prices "could easily go back to the low $30s."
The news agency stated that this sort of speculation "reminds us of Goldman's startling prediction in September 2015 that oil could go below $20 (it didn't)."
Goldman Sachs wasn't the only respected organization to predict such drastic outcomes, and even though they were made at a time when no OPEC cutback agreement was in place and pumping was full-out, they may be salient considering OPEC's cutback efforts have been mitigated by U.S. shale ramping up and the likelihood that pumping will continue full throttle once the agreement expires.
Last year, Bank of America Merrill Lynch stated, "Oil has been under pressure as of late, and downside risks of a dip into the $20s have grown."
