Saturday, March 15, 2014

Where are oil prices going?

 So where are oil prices going from here?  Just a quick up-date. Most oil-producing countries, especially those countries with national oil companies, show a decline in oil output and even more so a decline in exportable oil-output. In the meantime North America is on a tear but because of its land locked oil production WTI prices trade at a discount to world oil (Brent prices). These artificially low oil prices benefit North American refineries and the manufacturing sectors but it damages the revenues and profits of oil producers and royalty and land auction revenues of hydrocarbon producing jurisdictions such as Alberta and Texas.
But the discounts are coming to an end. These artificially reduced oil prices damage ultimately the entire economy just like the wheat board and dairy boards do. Thus, overtime the artificial discounts between Brent and WTI will disappear. Just looking at the chart below, WTI prices are moving in a narrow rising trend channel of temporary ups and downs. Barring any significant black swan events, it does not take a genius to extrapolate the channel and predict oil prices for 2015 to hover between $95 and $110 per barrel. 
This combined with the North American recovery in natural gas prices bodes well for Canada’s oil and gas industry and is one of the main causes that the TSX this year has outperformed U.S. stock markets which are basically flat for the year.
Fig. 1 shows 5-year  WTI oilprice from Oil-Price.Net and shown in our blog header.

TSX 2014

DOW 2014


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