Oil could plunge to $20 and this might be ‘the end of OPEC': Citigroup
The recent surge in oil prices is just a “head-fake,” and oil as cheap as $20 a barrel may soon be on the way, Citigroup said in a report on Monday as it lowered its forecast for crude.
Despite global declines in spending that have driven up oil prices in recent weeks, oil production in the U.S. is still rising, wrote Edward Morse, Citigroup’s global head of commodity research. Brazil and Russia are pumping oil at record levels, and Saudi Arabia, Iraq and Iran have been fighting to maintain their market share by cutting prices to Asia. The market is oversupplied, and storage tanks are topping out.
A pullback in production isn’t likely until the third quarter, Morse said. In the meantime, West Texas Intermediate Crude, which currently trades at around US$52 a barrel, could fall to the $20 range “for a while,” according to the report. The U.S. shale-oil revolution has broken OPEC’s ability to manipulate prices and maximize profits for oil-producing countries.
Oil’s surge to bull market seen as short-lived as global glut persists
After suffering its longest rout in history, crude rebounded Tuesday, entering a bull market after soaring 24% from a six-year low reached in January. Behind the gain was speculation that curbs in investment will cut production.
For all the optimism among traders, firms from Barclays Plc to Societe Generale SA and UBS Group AG say the rally is just temporary because less spending won’t eliminate a glut overnight. Instead of heading back to US$100 a barrel, oil could fall as low as US$30 because supply surpluses won’t disappear overnight, said Miswin Mahesh, a commodities analyst at Barclays.
“It’s hard to fight with the fundamentals,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “Until you really see production starting to be cut, you are not going to see any kind of sustainable rally. Any kind of strength will be sold into.”
“I am not convinced prices have hit bottom — it is too soon to say that,” Mike Wittner, Societe Generale’s New York-based global head of oil research, said by e-mail Tuesday. “Rig counts are important because they are a leading indicator of production. But there is a lag of several months before we see an impact on production.”DYI Comments: Whether oil prices are going to $30 or $20 a barrel is to be seen. What we do know is there is weakness in the industry that is temporary. Oil despite the new technologies has not had a major oil find since the Vanqor field of Russia in 1988, which has over 500 million tons of oil in estimated reserves. This drop is a buying opportunity to dollar cost average into your favorite oil/gas/service mutual fund. DYI's all time favorite is Vanguard's Energy Fund symbol VGENX. Oil and gas are of limited supply, as more and more countries throw off the shackles of socialism hydrocarbons will be in demand.
This drop (in oil prices) is a buying opportunity to dollar cost average into your favorite oil/gas/service mutual fund.Oil and gas is a natural resource that is in limited supply and will continue so over the next decades. Nothing has changed the secular upward move in oil/gas prices this temporary drop in prices is a buying opportunity for those with a long term investment outlook.
I would be remiss not to point out precious metals and their mining companies been through a brutal bear market, on average 70% decline from peak to trough. Future returns now look promising as the mining companies stock prices have significantly dropped more than their base metals. DYI's favorite (of course) is Vangauard's Precious Metals and Mining Fund symbol VGPMX. Everything else in the stock and bond world has been "jacked up" in price due to our Fed's sub atomic low interest rates my model is very defensive.
AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION - 2/1/15
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