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Up a Bit, Down a Bit: The Pricing Rollercoaster

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Watching commodity pricing is a
bit like watching a rollercoaster – it goes up one minute, down the next, then
up again and down.  Today’s oil prices
are no different.  We started the day up
a bit, and this afternoon we are down a bit – the rollercoaster continues.  If you were looking for a lazy river-like
pace, with its predictable turns and steady current, commodity pricing is not
the ride for you.

This morning, Bloomberg Energy reports the
following oil prices, which are up a bit from yesterday:

WTI Crude $4.06 per barrel, a +0.75%
change

Brent Crude $1.36 per barrel, a +.075%
change

A CNBC headline reads, “A
‘forecasting nightmare’: Volatile Oil Prices are Virtually Impossible to
Predict, Analysts Say
.”  In short,
prices are on a rollercoaster and folks are having difficulty predicting where
exactly on the ride we sit – are we on the upswing or should we brace for
decline?

A number of things have
contributed to pricing’s rollercoaster effect, including:

  • Supply
    and Demand
    U.S. Inventories are High.  According to the U.S. Energy Information
    Administration’s (“EIA”) Monthly Crude and Natural Gas Production report
    released March 29, 2019, which can be found here, U.S. crude oil
    production is increasing.  In fact,
    according to the EIA’s Today in Energy from April 9, 2019 entitled, “U.S. Crude Oil
    Production Grew 17% in 2018, surpassing the previous record in 1970
    ,”
    “[a]nnual U.S. crude oil production reached a record level of 10.96 million
    barrels per day in 2018.”
  • OPEC Production
    Cuts – Plus Global Issues
    .  According
    to CNN Business article entitled, “There’s
    Trouble in OPEC and Oil Prices are up 50%
    ,” trouble in 3 OPEC nations,
    namely, Venezuela, Iran and Libya, have contributed to domestic oil price
    increases.   
  • Restraint
    and a More Cautious Approach

    According to CNN Business article entitled, “Wall
    Street Taught Oil Drillers Restraint. That Could Lift Oil Prices
    ,” some of
    the price volatility could be related to the more cautious approach some
    companies are taking, with the hopes of keeping higher oil prices
    sustained.  The article also reports
    that the sense of restraint in the oil patch could lead to breaking the
    boom-bust cycle.

There are of course other factors
that may come into play, including politics, pipeline constraints, whether OPEC
continues supply cuts and global supply and demand impacts.

While it is difficult to predict where the rollercoaster is headed, yesterday’s CNBC article entitled, “Prepare for $80 oil this summer as ‘wounded bulls’ rise, RBC warns,” forecasts that “international oil prices will average $75 a barrel in 2019 and consumers may find themselves contending with bouts of $80 crude this summer, RBC Capital markets said.” One thing is for sure, we are along for the ride!

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