Commodities, Currencies, Emerging Markets, Energy, Geopolitics, Stocks

It’s Not A Joke Anymore, Oil Price Levels At $10 Per Barrel Quite Realistic Analysts Warn!

Oil Prices Falling

The failure of oil producing countries to strike a deal on capping crude production may keep oil prices low through 2017 and beyond, Russian Energy Minister Aleksandr Novak said on Thursday,” RT reports.

If the countries don’t agree [on decreasing production – Ed.] competition and production increases will continue, and prices may stay low in 2016, 2017, and so on,

Novak told journalists.

According to the minister, Russia won’t increase oil production this year, it will equal the 2015 level [almost 11 million barrels a day – Ed.]. Novak considers the initiative to stabilize oil output at January 2016 level as reasonable. The plan to freeze oil production levels was put forward earlier this month by Russia and Saudi Arabia.

However, Riyadh says it will not reduce crude production at its own expense and that high-cost American oil producers should make the cuts.

Oil minister Ali al-Naimi says the current crude oversupply should be addressed by less efficient producers.

The high-cost producers in question are US shale fields, Canada’s oil sands and deepwater projects. And this is the first time al-Naimi has so openly talked about Saudi Arabia’s oil policy.

According to The Federal Bank of St. Louis calculations, oil prices would need to fall to $0 per barrel by mid-2019 in order to validate current inflation expectations. After that, there is no oil price that would allow our model to predict a CPI path consistent with December 2015 breakeven inflation expectations. This implied path of oil prices is very different from the path of oil prices implied by futures contracts, which rises to more than $50 per barrel by mid-2019.

So how low can oil prices go? Gary Shilling, a US consultant, last year suggested

prices could drop as low as $10 per barrel!

So far Gary’s projection goes in the right direction and the $10 level is not only his view. Standard Chartered became the latest major bank to downgrade its oil outlook to $10 last month, joining the likes of Goldman Sachs, RBS and Morgan Stanley in making ultra-bearish calls.

However, there are also those (predominantly contrarian analysts) who strongly advocate to go oil long now in order not to miss the future bullish train. Hawkinvest, who like value, growth and contrarian investment approaches,  are a good example and believe that it’s crazy to be short oil now. Here are their five reasons to go oil long:

Oil is down huge already and there simply is not that much potential downside left, especially when compared to the upside.

Major oil stocks have started to trend higher, which could be a big signal that oil is at or near the bottom.

Oil demand remains solid and investors should start thinking about the long term and what a sustainable oil price is likely to be in the future.

At less than $30 per barrel, there is far more upside than downside in oil prices.

Record levels of short interest in the oil sector confirms this is a very crowded trade, which could ultimately lead to a massive short squeeze rally.

Do you agree? Please feel free to share your comments below.

We would like to encourage you to express your view on the minimum price range that you believe oil will touch by the end of this year? Our poll on Twitter is still on!

About ETFalpha

Chief ETF Strategist & Co-Founder at EMerging Equity


One thought on “It’s Not A Joke Anymore, Oil Price Levels At $10 Per Barrel Quite Realistic Analysts Warn!

  1. Reblogged this on World Peace Forum.


    Posted by daveyone1 | February 28, 2016, 12:10 am

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