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Is the big rebound in oil prices nearly over?
That`s what some analysts are saying, after watching crude prices more than double since mid-February.
"No, we are not going wildly bearish on crude oil prices," insists Martin King, FirstEnergy Capital`s commodity expert.
"At the moment, however, we see oil prices as having being stretched too much," he says, based on current market fundamentals.
"A move back to the low$60s to upper $50s would constitute a healthy correction for this market."
If King`s analysis is right, watch for gasoline prices to moderate, and the recent oil-stoked rally on the Toronto Stock Exchange to fizzle out.
After hitting an eight-month high of $73.23 US a barrel Thursday, oil prices slipped Friday, closing at $72.04 on the New York Mercantile Exchange.
Still, that`s up nearly $40 or 120 per cent from the February lows of about $33.
Oil stocks have also skyrocketed, with shares of Suncor, Canadian Natural Resources, Talisman, Nexen and others more than doubling from their 52-week lows.
Gasoline prices have tracked the big jump in crude.
Pump prices in the U. S. rose for the 45th day in a row Friday, to nearly $2.64 a gallon. That`s up more than $1 since December.
In the Edmonton area, regular unleaded gas currently sells for an average of 94.2 cents (Cdn) a litre, up from 87.6 cents a month ago, according to the website GasBuddy.com.Still, gas prices are well below the level of a year ago, when oil prices roared to an all-time high of $147 US by July.
That pushed U. S. gas prices above $4 a gallon, and Canadian prices to $1.50 (Cdn) a litre or more, in some places.
But with the 2009 summer driving season well underway, it`s a different story this year.
With millions of North Americans out of work, they`re driving a lot less, and gasoline inventories are high. In the face of soft demand, refiners are curbing supplies.
U. S. refiners are only running at about 86 per cent of capacity, which is extremely low for this time of year.
Oil storage tanks remain full and floating (ship bound) inventories also remain high, despite slack demand. The market weakness is expected to persist for the foreseeable future.
Result: the Organization of Petroleum Exporting Countries(OPEC) has again slashed its global demand forecast, to 83.8 million barrels per day. That`s down from more than 87 million bpd a year ago.
Meanwhile, despite all the apocalyptic talk about the implications of "peak oil," significant new oil supplies are coming onstream, notes King.
"The latest forecast (by the U. S. Department of Energy) shows a steadily increasing trend in effective spare capacity, driven primarily by capacity adds taking place in Saudi Arabia," he says.
"Three large fields in Saudi Arabia, Khurais (1.2 million barrels a day), Shaybah (250,000 bpd), and Nuayyim (100,000 bpd), will add just over 1.5 million bpd of productive capacity. These are just entering, or are about to enter service by the end of this year."
Saudi Arabia`s Khursaniyah project, which can crank out 500,000 bpd of light, sweet crude, has already come onstream.
Since the DOE`S estimates are typically conservative, the real numbers could be even higher, King notes.
"Thus, spare capacity and floating storage remain large obstacles around which, or over which, this market has to pass to justify what we see as some stretched price valuations for crude oil."
Calgary money manager Josef Schachter has also turned bearish on oil. He figures crude prices could slip below the $50 level once a correction runs its course.
Like King, he says the recent run-up in crude has been largely driven by weakness in the greenback, not economic fundamentals.
Read the full article here.
That`s what some analysts are saying, after watching crude prices more than double since mid-February.
"No, we are not going wildly bearish on crude oil prices," insists Martin King, FirstEnergy Capital`s commodity expert.
"At the moment, however, we see oil prices as having being stretched too much," he says, based on current market fundamentals.
"A move back to the low$60s to upper $50s would constitute a healthy correction for this market."
If King`s analysis is right, watch for gasoline prices to moderate, and the recent oil-stoked rally on the Toronto Stock Exchange to fizzle out.
After hitting an eight-month high of $73.23 US a barrel Thursday, oil prices slipped Friday, closing at $72.04 on the New York Mercantile Exchange.
Still, that`s up nearly $40 or 120 per cent from the February lows of about $33.
Oil stocks have also skyrocketed, with shares of Suncor, Canadian Natural Resources, Talisman, Nexen and others more than doubling from their 52-week lows.
Gasoline prices have tracked the big jump in crude.
Pump prices in the U. S. rose for the 45th day in a row Friday, to nearly $2.64 a gallon. That`s up more than $1 since December.
In the Edmonton area, regular unleaded gas currently sells for an average of 94.2 cents (Cdn) a litre, up from 87.6 cents a month ago, according to the website GasBuddy.com.Still, gas prices are well below the level of a year ago, when oil prices roared to an all-time high of $147 US by July.
That pushed U. S. gas prices above $4 a gallon, and Canadian prices to $1.50 (Cdn) a litre or more, in some places.
But with the 2009 summer driving season well underway, it`s a different story this year.
With millions of North Americans out of work, they`re driving a lot less, and gasoline inventories are high. In the face of soft demand, refiners are curbing supplies.
U. S. refiners are only running at about 86 per cent of capacity, which is extremely low for this time of year.
Oil storage tanks remain full and floating (ship bound) inventories also remain high, despite slack demand. The market weakness is expected to persist for the foreseeable future.
Result: the Organization of Petroleum Exporting Countries(OPEC) has again slashed its global demand forecast, to 83.8 million barrels per day. That`s down from more than 87 million bpd a year ago.
Meanwhile, despite all the apocalyptic talk about the implications of "peak oil," significant new oil supplies are coming onstream, notes King.
"The latest forecast (by the U. S. Department of Energy) shows a steadily increasing trend in effective spare capacity, driven primarily by capacity adds taking place in Saudi Arabia," he says.
"Three large fields in Saudi Arabia, Khurais (1.2 million barrels a day), Shaybah (250,000 bpd), and Nuayyim (100,000 bpd), will add just over 1.5 million bpd of productive capacity. These are just entering, or are about to enter service by the end of this year."
Saudi Arabia`s Khursaniyah project, which can crank out 500,000 bpd of light, sweet crude, has already come onstream.
Since the DOE`S estimates are typically conservative, the real numbers could be even higher, King notes.
"Thus, spare capacity and floating storage remain large obstacles around which, or over which, this market has to pass to justify what we see as some stretched price valuations for crude oil."
Calgary money manager Josef Schachter has also turned bearish on oil. He figures crude prices could slip below the $50 level once a correction runs its course.
Like King, he says the recent run-up in crude has been largely driven by weakness in the greenback, not economic fundamentals.
Read the full article here.