Oil Price Speculation

oil priceIt’s like the weather in Canada in winter – everyone is talking about it! The oil price. What is it about that perennial yoyo that brings the speculators out in all of us? Opinions are rife – ‘its for the long-term’, ‘it’ll recover by summer’, ‘it’s Putin and the Ukraine’. And as Welaptega is in the international energy game it seems everyone canvases you like you must have sayer-like insights. Ha.

Because noone really knows what is going to happen to it? We sure can see the effects – at home it has slammed the western Canadian economy – Hell, Alberta is talking seriously about a sales tax! –  the Canadian dollar has collapsed – and there have been layoffs of well-paid workers from ‘sea to shining sea’. It’s the same internationally with far reaching cut-backs in E&P budgets causing worker redundancies and broader socio-economic consequences that worsen as the slump continues. So back to speculation on where the oil price going.

In the last couple of weeks as the price has languished around $50 a barrel there has been much commentary focused on the new King of Saudi Arabia and how his policies are likely to catalyse a price recovery, while at the same time Saudi Aramco officials have mused smugly on the profitability of some of their fields at single digit dollar per barrel levels. There have been questions on the effects of new US-Iranian détente, the upset that may cause to US-Saudi relations, and possible recriminations. To name a few other influences, there are the wars in the middle east, Putin and the Ukraine, the effects of the booming fracking sector, a lacklustre Chinese economy, a sustained European downturn – well the point is that for even the most eminent and seasoned energy experts its quite a mess to sort through.

On the financial markets the oil/energy stocks are underperforming generally bullish results from other sectors (the TSE energy index has fallen a whopping 23% since the New Year), and despite this broad trend there is still uncertainty. As examples of the breadth of opinions out there, Bloomberg has on one hand predicted a rapid recovery to $60-80 or higher, while on the other it cautions that geopolitical uncertainty could drag that out well into 2016 and that the price could be substantially lower. This kind of ‘couched’ position is becoming standard as this down turn drags on, but it’s not very helpful as a strategic tool! The point is that no one knows – just like they haven’t in any other oil price slump.

In reality the only certainties are that over time the oil price will either decrease or increase to unknown lows and highs respectively – and of course there will be pundits willing to fill the airwaves with their ‘expert’ opinions and predictions, and no shortage of people willing to fill your ears with their speculations in the line-up at Tim Hortons.

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