As Crude Rises to 28-Month High Analysts Switch Gears and Now Say "Get Used to Higher Oil Prices"

The market gains are once again based on talk and hope, not action. File Image / Pixabay

The formal backing of the Organization of the Petroleum Exporting Countries' (OPEC) crude cutback extension by Saudi Arabia and Iraq on Thursday caused oil to close at the highest level in over two years, with West Texas Intermediate settling up 24 cents to $54.54 and Brent climbing 13 cents to $60.62.

Khalid Al-Falih, oil minister for the Saudis, said he expects "improving market conditions to continue, and as my colleagues in OPEC and non-OPEC gather in four weeks in Vienna, I expect that we will renew our resolve to return already improving global inventories to their normal levels."

Al-Falih's Iraqi counterpart, Jabbar al-Luaibi, stated that his country supports any OPEC decision to improve oil prices; this comes on the heels of Issam Almarzooq, oil minister for Kuwait, stating that he expects an extension to be formalized at the November 30 gathering.

Although nothing has been agreed to yet, and with a selective memory loss about OPEC's past failure to bring about a meaningful return to healthy market conditions apparently in full swing, investors are hopeful not only for an extension but that it will be successful: Mark Watkins, regional investment manager at U.S. Bank Wealth Management, said, "Getting as much visibility about the future cuts is going to be key."

Mark Watkins. regional investment manager for U.S. Bank, said of tomorrow's rig count from U.S. producers, "If rig counts didn't increase with oil prices being at a higher level then we may be seeing a high water mark in the U.S. shale production at this time."

To which Michael Lynch, president of Strategic Energy & Economic Research, added, "We are seeing more balanced markets than we've had since 2014."

Only John Kilduff, founding partner of Again Capital, was more reserved in his outlook: "There's a little bit of questioning of the cohesion that's there, although the Saudis keep at it with their rhetoric."

But it seems as the Vienna conference draws nearer, nothing can stop the idea that the market trajectory is unwaveringly upward: Jason Schenker, president and founder of Prestige Economics, wrote in Bloomberg on Thursday that the current high market prices for crude are here to stay, and that the reason oil prices dropped so drastically in 2015 and past years was China entering a manufacturing recession.

Schenker portrayed global inventories as "at a risk of declining," and that "a stronger pace of growth in China" - which he views as likely - "could exert an outsized impact on demand for commodities, which would likely send crude oil prices higher."

An argument could be made that the analytical community taken as a whole appears just as schizophrenic as investors: earlier this week a host of experts insisted that oil prices are not going to bounce back to the highs of previous years, and Goolam Ballim, chief economist and global head of research for Standard Bank Group, said everyone will have to get used to $50 per barrel crude.