June 30, 2012

WTI Crude Oil Price will Fall to $60 per Barrel in 2012 ?

WTI crude oil prices will fall to $60 per barrel in 2012 ?

WTI Crude Oil Prices 2008-2012, source Ycharts

While AEO2012 projects Future Oil Prices till 2035, ZeroHedge makes a case for crude oil prices falling to $60 per barrel in 2012.

Per ZeroHedge, the crude oil prices will continue to fall this year and beyond. Oil price could fall to $60 per barrel from the current $80 per barrel.

The rise of crude oil prices over the last five years is not supported by market fundamentals. And, recent market happenings point to the further fall of crude oil prices.
With record refinery runs, we still cannot make a dent in the oil Inventories, which implies that there is a lot of oil in the market.  In fact, if this trend continues, even just for the next three months, we are going to shatter previous storage records here in the US.  At current rate, the inventory number could smash through the 400 Million Barrel level over the next quarter.
This does not bode well for the oil market when the slow part of the year comes around in August and September, where Gasoline demand drops off rather sharply, and is usually the slowest part of the year in terms of fuel usage, demand, and prices typically drop significantly each year.  Technically, WTI could easily blow below $70/b with no major support till $60/b comes this August/September, and prices would remain challenged in the short to medium term. 
So essentially, five years of really high prices--higher than the actual fundamentals of the economy should dictate--have caused an artificial market scenario where longer-term demand was being stifled by currency concerns, inflation concerns, while commodity investment in general has served as a case of over investment in this area in relation to true, actual Global demand.
Throw in the fact that it seems everybody (governments as well as consumers) is in debt,nobody has any money, credit issues are becoming increasingly burdensome to deficit financing to artificially stimulate growth via the government intervention route, all these factors are forming a perfect storm for the oil market to face some major headwinds for the next 5 years.

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