It wasn’t long ago that everyone seemed to be lowering their estimates for oil prices. Especially when, in last year’s fourth quarter, investment banks decreased estimates to the low 60s. Now we’ve hit the mid-60s with many predicting higher prices are ahead of us.
On a recent Financial Sense Newshour podcast, Dan Steffens of the Energy Prospectus Group gave listeners an update on the oil and energy markets, including the possibility of major oil-producing Venezuela going "to zero" on their oil exports this year.
For the full podcast and audio, see Craig Johnson on Market Outlook; Dan Steffens on Oil. You can also subscribe to Financial Sense Newshour on iTunes, Spotify, Stitcher, and wherever else you listen to podcasts!
Saudi Arabia Wants $80 Oil
“I think the main reason oil’s going up is because Saudi Arabia wants $80 Brent,” he said. Saudi Arabia has been cutting oil production, producing 500,000 barrels a day below what they agreed to with OPEC in December.
“All the fears that kept oil prices low are falling away and there were two things that oil bears weren’t looking at.” Those two things were demand for oil and political disruption.
“We keep hearing peak demand for oil being greater than expected…but anywhere you look around the globe, economies are expanding—they’re using more oil.”
Political Disruption in Venezuela, Middle East
Political disruption affects many top oil-producing countries such as Venezuela and Libya and it’s challenging to predict what will happen politically in these countries.
In Venezuela, Steffens referenced the country’s recent major power outages that shut down their largest port and said, “they call them unplanned shortages for a reason…and it will probably be a lot worse before it gets better…Venezuela’s production could actually go to zero.”
Meanwhile in Libya, political instability hasn’t yet affected the country’s oil production, “but they do export about a million barrels a day so that could have a significant impact on the global market.”
Another important piece to the puzzle, Steffens pointed out, is the seasonality of the U.S. refining industry. “Right now, they are wrapping up their semi-annual maintenance period…refinery utilization is running at about 85 percent of capacity.” However, that needs to ramp up to over 95 percent capacity in the next few weeks in order to meet demand for transportation fuels, he said.
Earlier this month, gasoline inventories saw a significant decline because “refineries are not making enough gasoline to even meet current demand, so that’s why you actually had oil prices go up.”
Steffens added, “overall what the market is forgetting about is every single year the demand for oil is going up.”
To listen to the full podcast and interview, see Craig Johnson on Market Outlook; Dan Steffens on Oil. For the full archive of our free and premium podcast shows, go to our Financial Sense Newshour podcast page.