What Is A ‘Fair’ Price For Oil?
Last week, oil prices hit their highest level since late 2014 on the back of continued global and U.S. stockpile drawdowns and expectations that oil demand growth will stay strong this year.
Analysts and officials are once again trying to predict what a ‘fair’ price for oil is – a prediction that must take into account the summer driving season, the possibility of new sanctions on Iran, elections in Venezuela and Iraq, continuous OPEC chatter about “mission accomplished or not”, and reports of OPEC kingpin Saudi Arabia aiming for oil prices of $80 to $100 a barrel.
Some analysts and officials believe that oil prices could hit $80 this year, although such a price would probably be due to the geopolitical risk premium rather than market fundamentals.
Even if oil prices were to rise to $80, such an increase would be short-lived, and would be mostly fueled by fears of a supply disruption, especially in the Middle East with possible new sanctions on Iranian oil and with tenser situations in and around Syria and Yemen. Then there’s Venezuela, with its oil production plummeting and elections expected to be held in May—and if the U.S. were to slap further sanctions on Venezuela, such as on its oil industry, it would be yet another wild card for oil prices later this year.
Yet, around $75 oil is as good as it’s going to get in the short term, according to some investment banks and oil officials. No one is predicting oil at $100 yet.
“I think $65 to $75 is more realistic numbers for the rest of the year, but there are so many factors that can change that,” Mohammed bin Hamad Al Rumhi, the oil minister of non-OPEC participant in the production cut deal, Oman, told CNBC.
“In my opinion, where we are is not too bad and we can live with it. That’s $65 to $75, give or take, for the foreseeable future,” said the minister.
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