As the U.S. market begins its recovery from the double whammy served up by hurricanes Harvey and Irma, my earlier projections of where crude oil prices are headed have come true.
Just a little quicker than anticipated.
As I am writing this, WTI (West Texas Intermediate, the benchmark crude rate for futures contracts written in New York) has moved above $50 a barrel for the first time in over five weeks.
In fact, it’s up 6.1 percent in barely three days. Meanwhile, Brent (the equivalent and more globally used benchmark set daily in London) is approaching $56.
Two months ago, I said WTI would be at $52-$54 and Brent at $55-$57 by the end of September. Currently, WTI is within $2 a barrel of its predicted range and Brent has already reached it.
What’s interesting is the fact that this rise is taking place while much of the Gulf Coast refinery infrastructure either remains offline or is running at partial capacity.
After all, refiners form the bulk of crude end users. A reduction in refinery flow rates usually cuts into crude demand and, thereby, pushes prices down.
Despite that, oil prices are going up this morning. There are three reasons for this…
Ignore the News – Oil Demand is Rising
First, the crude oil balance we’ve talked about for some time has been coming in quicker than anticipated. That’s the case even with the rising U.S. production levels.
But remember, oil prices are set by global developments, not (primarily) by what happens in North America or Western Europe.
Both the International Energy Agency (IEA) in Paris and the U.S. Energy Information Administration (EIA) have recently reported that the balance between supply and demand should be realized in the first quarter of 2018. That is much earlier than previously forecasted.
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