Crude going higher

May 31, 2016 09:20 AM
Daily Energy Market Analysis

More bulls are getting on the crude oil bandwagon as it is clear that the path to market balance is getting closer every day. Investment banks surveyed by The Wall Street Journal hiked its price forecast for the third consecutive month this May, predicting that Brent crude, the international benchmark, will average $43 a barrel in 2016. That's up $2 from April's survey.

The survey of 13 investment banks foresees the price of West Texas Intermediate--the U.S. oil gauge--averaging at $41 a barrel this year and $55 a barrel in 2017. This is a big change from the very bearish predictions we heard earlier in the year as demand continues to exceed expectations and supply disruptions start to matter. This comes against a backdrop of historic capital cutbacks in energy leading to low oil rig counts and falling us production.

We are seeing some good news and bad news of the supply disruption front. Suncor announced it has begun the safe and staged restart of its operations in the Regional Municipality of Wood Buffalo with initial production from its Firebag in situ facility early last week. Start-up activities are well underway at Base Plant and the MacKay River in situ facility and, subject to conditions in the region, Suncor expects initial production by the end of this week. Suncor has moved over 4,000 employees and contractors back into the region, including Fort Hills workers, and anticipates that over the coming week it will move approximately 3,500 additional people to support its return to operations.

Yet the news is not as good in Nigeria. Militants blew up strategic gas and crude pipelines belonging to Shell and Agip on Saturday in an increasingly fierce campaign that has chopped Nigeria's oil production in half, militants and residents said, according to the Telegraph. Nigeria's oil production had already fallen from a projected 2.2 million barrels a day to 1.4 million barrels before the latest attacks on the oil industry in southern Nigeria, including three within the past week on facilities of the U.S. oil major Chevron. Several companies have evacuated some of their workers. The group, called the Niger Delta Avengers, has given the oil companies a deadline to leave Nigeria's southern, oil-producing Niger Delta today or "Watch out something big is about to happen and it will shock the whole world." 

Bloomberg News Reports that Libya’s Petroleum Facilities Guard captured a town near the country’s biggest oil port of Es Sider after clashes with Islamic State militants as the divided country works to reunite factions and revive the economy and oil production. The force took control of Bin Jawad in central Libya after clashes during which five petroleum guards were killed and 16 others wounded, PFG spokesman Ali al-Hasy said by phone. At least six Islamic State militants were killed, he said. The petroleum guards were also battling Islamic State militants at the nearby town of Nofaliyeh, he said.  “The Islamic State’s retreat came after we besieged them and prevented them from getting supplies over the past weeks,” al-Hasy said. 

Libya pumped about 1.6 million barrels a day of crude before the 2011 rebellion that ended Moammar Al Qaddafi’s 42-year rule. It’s now the smallest producer in the Organization of Petroleum Exporting Countries, with an output of about 300,000 barrels a day. Since Qaddafi’s ouster, armed militias have also competed for control of the nation’s oil facilities.

We have been saying for some time that oil has bottomed. I still feel that we are at a generational bottom that will make current price levels look cheap/ As OPEC get ready for its big meeting the better fundamentals may make it easier to talk about a freeze. OPEC has one the production war so they might as well start working together to beef up the price.

Natural gas may rise as the heat comes in! Not to mention our first tropical storm. Bonnie is a rain maker but a reminder that most of the hurricane season is ahead of us. Buy call in natural gas! 

About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets.