{"id":1195442,"date":"2020-07-13T11:51:52","date_gmt":"2020-07-13T16:51:52","guid":{"rendered":"https:\/\/oilandgas-investments.com\/?p=32619"},"modified":"2020-07-13T11:51:52","modified_gmt":"2020-07-13T16:51:52","slug":"the-oil-market-bulls-brokerage-firms-give-reasons-for-higher-oil-prices","status":"publish","type":"post","link":"https:\/\/juniorminingnews.com\/?p=1195442","title":{"rendered":"THE OIL MARKET BULLS Brokerage Firms Give Reasons for Higher Oil Prices"},"content":{"rendered":"

Energy has been left out of the bull market so far.<\/p>\n

Yes, oil and oil stocks have recovered from the depths of the crisis, but are still down on the year.\u00a0 The price is firmly above zero now \u2013 which is saying something, I guess.<\/p>\n

But will we ever have another bull market in oil?\u00a0<\/p>\n

There is hope.\u00a0 A few crude bulls out there are willing to stick their necks out while everyone else has thrown in the towel.<\/p>\n

While the brokerage arm of Canada\u2019s #2 bank, BMO, has a conservative price target on oil for the next couple years ($42\/bbl WTI in 2021) they see a massive supply gap developing that could lead to much higher prices in the following years.<\/p>\n

US brokerage firm Raymond James believes that bull market could come sooner.\u00a0 They forecast oil could hit $65\/bbl in 2021.<\/p>\n

That is less than a year away.\u00a0 If they are right, there is a tonne of upside for oil equities.<\/p>\n

In April, Raymond James was expecting a tough 3 months.\u00a0 They saw physical crude below $20\/bbl through the second quarter.<\/p>\n

But by the beginning of June RayJay changed their tune.\u00a0 \u00a0They came out with a much more upbeat assessment.<\/p>\n

Why the flip?\u00a0 It begins with what happened \u2013 or more exactly, what did not happen. \u00a0\u00a0Demand destruction in April was far less than what they and the consensus had modeled.<\/p>\n

The \u201cmath\u201d of huge demand destruction simply did not work.\u00a0 The consensus was that demand fell 25-30 million barrels\u00a0 a day (MMbpd) in April.\u00a0 But measured storage only rose 10 MMbbl\/d.\u00a0 Remember that shut-ins in April had not happened yet (the Saudis were still flooding the market, the OPEC+ agreement did not start until May).
\u00a0<\/p>\n

Where Did The Oil Go?<\/strong><\/span><\/p>\n<\/h2>\n

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Source: Raymond James<\/em><\/p>\n

There is only one possible answer, says Raymond James.\u00a0 Demand destruction was far less<\/u><\/em> than what we have been told.<\/p>\n

In addition, OPEC+ cut compliance turned out to be on the high side.\u00a0 Raymond James estimates that compliance with the OPEC+ cuts has been 6.9 MMbblpd, which is 1.2 MMbblpd more than the consensus forecast.<\/p>\n

By the beginning of June, oil inventories were already falling.\u00a0 That will only accelerate through the rest of the year.\u00a0 RayJay expects inventories to normalize by late 2020 \u2013 FAR EARLIER than they (and anyone!) had previously predicted.<\/p>\n

Oil inventories remain high but they aren\u2019t that high.\u00a0 U.S crude oil inventories, the markets bellwether, are ~40MMbbls above the peak of the last 5-years.\u00a0 Product inventories have not even broken out to new highs.
\u00a0<\/p>\n

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Floating storage remains high \u2013 it is up 269% year-over-year \u2013 but it is beginning to come down as well.\u00a0 \u00a0Bloomberg reported that floating storage came down last week for the first time since the price war \u2013 dropping 8% on the week.<\/p>\n

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\u00a0<\/p>\n

Going forward we have both positives and negatives.<\/p>\n

On the negative side we\u2019re still not flying at all internationally. Domestically flights are far from full.<\/p>\n

We still don\u2019t know how much the \u201cwork-from-home\u201d lifestyle will become a permanent feature.<\/p>\n

Overall, demand remains below where it was pre-pandemic.<\/p>\n

But it is not all doom and gloom.\u00a0<\/p>\n

    \n
  1. Buses and subways are now avoided by many people.\u00a0 No one wants to sit in the same vehicle as a stranger.\u00a0 Cars are the way to go and while the bicycling craze is real too, cars are taking share from mass transit.<\/li>\n
  2. Second, the lock-up is over and even with a second wave it is likely not coming back.\u00a0 Summer is here and we\u2019re all ready to get out.\u00a0 Summer driving is likely to be the ticket for most \u2013 and RV sales, notable gas guzzlers, are at record levels.<\/li>\n
  3. Third, China is already back to pre-COVID levels.<\/li>\n<\/ol>\n

    In an interview with IHS Markit, Saudi Arabia CEO Amin Nassir said that he was \u201cvery optimistic\u201d about the second half, particularly in China:<\/p>\n

    We see it in China today, if you look at China today its almost at 90%, in gasoline its around 95% in China. Gasoline and diesel are picking up to pre Covid levels, jet fuel is still lagging in terms of less air travel and all of that.<\/p>\n

    Looking at demand for the three main petroleum products in the United States, diesel held up well to begin with, and gasoline is making a recovery.\u00a0 Jet fuel remains the laggard.<\/p>\n

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    \u00a0<\/p>\n

    Overall RayJay estimates that May demand is up 5-7 MMbpd over April.<\/p>\n

    Capital Dries Up<\/strong><\/span><\/h2>\n

    But perhaps the biggest impact is to the long-run \u2013 what low prices and virtually no access to capital is doing to U.S shale and international drillers alike.<\/p>\n

    In 2019 the average rig count in the United States was 943.\u00a0 In 2020 that is expected to fall by more than half.\u00a0 In 2021 it could fall even further if oil prices do not recover.\u00a0<\/p>\n

    What we learned from 2016 is that US production declines sharply when prices drop below $35\/bbl.\u00a0 At current strip pricing U.S oil production will continue to fall.<\/p>\n

    Consider these comments from producers at RBC Capital Markets recent energy conference:<\/p>\n