Americas News
Andurand Forecasts Oil at $70 Later This Year, but Kilduff Maintains that the Low $40s is More Likely
Forecasts of wild highs and lows have become a daily staple of oil price reporting, with the highs usually dismissed out of the gate as unlikely; but one of the most respected oil traders, Andurand Capital Management, is challenging conventional wisdom by stating that prices aren't capped and will in fact shoot up to $70 per barrel later this year.
At a time in the 2017 market where most analysts have given up hoping for even a breakthrough beyond $60, Pierre Andurand, managing partner at Andurand, told CNBC that "I think oil prices are likely to recover to around $70 ... I think the market will switch to backwardation – sustainable backwardation – by late summer and that will bring the next wave in oil prices."
The often bearish Andurand explained his reasoning by admitting while he had been surprised by the range bound nature of trading in 2017, he doesn't think it will last: "U.S. shale producers have been hedging a lot of their production, capping prices, so the improvements in fundamentals were not priced in at all, but I believe that now when people will really see that inventories are going down fast, that eventually the fundamentals will win and prices will go higher."
As for whether the Organization of the Petroleum Exporting Countries (OPEC) will extend its output reduction agreement to the end of this year, Andurand speculated that should current prices remain in place when the agreement comes up for renewal on May 25, "I think they will extend it; if we're at $65, they probably will not.
"But I think we will be higher by then because it will be obvious to everybody that inventories are going down and the OPEC cut really worked."
John Kilduff, founding partner of Again Capital, on Monday used a different set of criteria to predict that rather than a price build, the market will likely reach the low $40s later in 2017.
He told CNBC that "a one-two punch" is coming in the form of steadily rising U.S. shale production, which in turn may test the commitment of Saudi Arabia and other OPEC nations to adhere to their production cut agreement, now approaching the halfway point of its six month duration: "[In April], we're going to see U.S. domestic production from the shale players rise by 100,000 barrels - that's going to hurt.
"Saudis are not going to want to lose market share."
Kilduff added that developing the Dakota Access and Keystone XL pipelines under pro-energy U.S. president Donald Trump should make transporting American oil cheaper, which could improve margins a boost as American crude competes on the world market.
Although several observers were surprised by Andurand's upbeat prediction, it doesn't come close to matching the forecast provided at the end of 2016 by Dan Dicker, president of MercBloc, who told Bloomberg Daybreak: Americas that "I see an outside shot of triple digits by the end of the year."
