With drilling at high levels in the United States and production cuts taking place across the globe, it makes one wonder whether the bears or bulls will win at this game of “tug of war.” As discussed in my blog last week, $50 crude has been said to be the “break-even point” for majors such as BP.
According to Forbes, crude oil is more likely to fall under $50 before it heads upwards towards $70. What’s the reasoning behind this?
- Reason # 1: Production is up big time (Permian basin)
- 8 million barrel addition to storage reported last week (largest in history)
- 591 active oil rigs (5-year high)
- Reason # 2: March output is expected to show an increase from 4.79 to 4.87 million barrels per day.
- Example: Permian Basin is expected to see 70,000 barrel per day increase
If there is so much data supporting that oil should go below $50, then why hasn’t it happened for a while?
- Reason: Uncertainty surrounding production cuts
- ie: Russia says they will reevaluate plans for production levels past set date
- ie: OPEC has not made any telling announcements in regards to whether it will extend its production cuts past the set date.