Report: 3 Reasons Oil is Headed for $80

The Associated Press
AP Photo/Keith Srakocic

A new, leading industrial report is bullish on the prospects of the price of oil reaching $80 per barrel by 2017. Unexpectedly deep supply curtailments and an inability to quickly scale up domestic production are to be leading drivers for the recovery.

Raymond James & Associates summarized its forecast of $80 oil with the simple economic concept of supply and demand. “When oil drilling activity collapses, oil supply goes down too! … Amazing huh?”

The Florida-based investment company outlines three primary drivers for market recovery, looking at both domestic and global indicators, according to Bloomberg.

Global production will drop faster than previously predicted.

Although market analysts and leading industry stakeholders expected a drop in production as prices rebalanced, the latest report suggests the global market will see roughly 400,000 barrels per day absent in 2017. Raymond James cites natural contractions in China, Mexico and others as leading examples. A May 2016 report found Chinese output falling 5.6 percent from its previous month, the largest drop since November 2011, according to the regime’s National Bureau of Statistics.

The state-run oil company, Petroleos Mexicanos (PEMEX), released its intentions to lay off staff and internally restructure operations in December 2015 as it faced a 25-year low in production, according to Bloomberg. Beginning in 2010, the company consistently missed forecasted output benchmarks. A combination of disruptions, budget cuts and $100 billion in debt continues to drag the state entity down. CNBC reports that PEMEX hopes to draw support from international investors to help foster a recovery.

Unexpected outages will continue to undersupply the global market.

2016 has already demonstrated how quickly a seemingly isolated disruption can create a global ripple effect. Breitbart Texas recently reported on such outages occurring in Libya and Nigeria as violent attacks and pipeline disruptions spread throughout the two countries. May wildfires burning through portions of Canada created a daily production deficit of 1 million barrels. A separate Breitbart Texas report noted how planners in India have been forced to choose between consuming potable water and domestic refining as a drought continues to linger – resulting in record imports to balance local demand.

The latest forecast suggests that poor weather and human tumult could remove an additional 300,000 barrels from the global market each day.

U.S. drillers won’t be fast enough to keep pace with demand.

Domestic producers unsurprisingly do not have clone armies with equipment in perfect condition to get drilled uncompleted wells (DUCs) pumping oil into the market on a moment’s notice. The larger domestic industry lost 350,000 jobs amid the 2014 glut, according to Forbes. Until a critical mass of equipment and reasonably-priced labor is in position, a “price pop” could occur. Recent indicators suggest that roughly 3,300 DUCs scatter the American landscape, apart from drilling plans that were scrapped altogether.

Given these conditions as the market continues to rebalance, Raymond James expects to see $80 oil by the end of 2017, yet West Texas Intermediate Crude will eventually land around $70 per barrel, according to the report.

Logan Churchwell is a founding member of the Breitbart Texas team. You can follow him on Twitter @LCChurchwell.


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