EMEA News
Prepare for $80/bbl Oil - or Even $100, if the Saudis Get Their Way
Those who wonder what the near term landscape for crude prices will be needed to look no further on Thursday than Francisco Blanch, head of global commodities research at Bank of America Merrill Lynch, who told Bloomberg television that, "We believe we'll see $80 per barrel" in the second quarter of this year.
His response was triggered by Bloomberg Daybreak: Americas host Alix Steel asking what seems to be her favourite question: if the crude market is currently tight, what possible case can the Organization of the Petroleum Exporting Countries (OPEC) make for extending its production cuts, as it is likely to do?
Blanch pointed out that OPEC's de facto leader, Saudi Arabia, "has got a pretty big fiscal hole.....their break even is around $85 per barrel to keep the government in balance, so clearly they need more money, want more money."
He added that Russia, "which has a floating exchange rate, probably has a strong incentive to start increasing production and getting back some market share starting next year."
Supported Blanch's case is a Reuters report citing three unnamed industry sources, all of whom claim the Saudis would "be happy to see crude futures rally up to triple digits in the near term"; Reuters noted that reports of the kingdom's desire for a further uptick in oil comes at a time when it is undergoing final preparations for its planned sale of a minority stake in state oil company, Saudi Aramco, for which the Saudis hope to raise about $100 billion and attract a valuation of $2 trillion in the offering.
The question is, how likely is it that these lofty figures come true?
As far as Bloomberg is concerned, $80 per barrel oil at least "looks primed for capture."
The new agency noted on Thursday that while futures in London have broken past the 50 percent Fibonacci retracement of the slump from when they were above $100 in mid-2014, "another signal shows the rally could persist to the line just under $82.
"Recent corrections in Brent have shown prices hit a speed bump only when the reading on its Relative Strength Index climbs to 75, well past the usual overbought signal of 70; With that measure now at about 68, it points to continued support for crude on its way up."
Alix Steel's befuddlement over why OPEC would want to extend its production cuts in the current market climate compelled her a week ago to question Daniel Dicker, founder of The Energy Word, about the matter, stating, "That will only mean a massive upside for oil."
