Crude has bumped up against $120 several times in the last month. It wants to go higher, and it will. Price was pushed down by the Fed’s action and some improvement in the dollar. Supply data was moderately good. Goldman Sachs are looked at this and has said look for $200 oil. According to Bloomberg, “The possibility of $150-$200 per barrel seems increasingly likely over the next six-24 months, though predicting the ultimate peak in oil prices as well as the remaining duration of the upcycle remains a major uncertainty."
Perhaps it is fair to ask what took them so long.
The geopolitical factors which move oil up are getting worse, perhaps much worse.
In the last several days, there have been more bombings of Royal Dutch Shell facilities in Nigeria, the 8th largest oil producing country. According to Reuters a spokesman for the oil company said "We are mobilising containment booms to stop the spread of oil and have also shut in some production volumes." Nigeria is becoming more and not less unstable.The attacks on Western oil operations are likely to increase.
In Russia, the government has raised the oil export tax by 17%. Bloomberg quotes one source as commenting “The government is addicted to high oil revenues,” said Michael Teagarden, a sales trader at UBS AG in Moscow. “Russia needs to wean itself from this windfall and encourage producers to spend the money developing new fields.”
These pieces of news come on top of word that a ship under contract to the U.S. Defense Department fired warning shots at two boats in the Persian Gulf.
Recent reports from Mexico show that its oil fields are producing less and less crude. Oil exports from the country dropped 12% in the first quarter compared with a year ago. Part of this is because output from the nation’s largest field is beginning to tail off sharply.
Rising oil prices are being created by three factors now. One is the aging of certain large fields. Another is the amount of profit that exporters like Russia and OPEC would like to keep for themselves. The last is flare-ups of instability in countries which are already experiencing great unrest.
None of these is going away.
Douglas A. McIntyre
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