Will crude oil price ‘reach’ $60/barrel before year-end? – Import on the rise as demand increases

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This news came as a surprise for everyone particularly the oil-producing countries. They did not expect to witness such high increase in oil prices within a short period — from $27 per barrel to $52 in less than six months.

The oil producing nations can soon witness the doubling of their income and can look forward to some positive news. Now that the oil fundamentals are back at work suddenly, crude oil inventories are on the decline as the USA has lost more than 3 million barrels. More importantly, the shale oil production is on the decline while oil import is on the rise. In addition, the demand for oil is strong in the main oil-consuming countries. This is the perfect scenario for the oil prices to increase.

For how long will this benign environment continue? Will we see another round of declining oil prices? The fall in oil prices will start as soon as the oil prices hit a comfortable level, which will then trigger the return of shale oil production. In the meantime, oil prices must remain strong for the next six months in order to provide space for the shale oil producers to determine if the timing is right to operate the oil rigs again.

This time, the American shale oil producers will not jump the wagon to start digging. They have learnt their lessons and need more lead time to ensure that the global markets are able to sustain them and will have room for unconventional oil. This will happen only if the traditional oil suppliers no longer have extra capacity to meet the demands of the market. Oil prices must stay above the level of $60 per barrel for more than six months in order to stabilize the oil markets. Shale oil producers cannot take the risk and become bankrupt again.

This is good news indeed for the oil-producing countries but not for the oil-consuming nations. However, the situation is alright as long as the oil prices do not hit the roof and increase beyond $70 per barrel so that the demand can be encouraged and market confidence regained.

Meanwhile, oil-producing countries should not be over cautious this time. They should not let the oil prices increase above certain range of $60 in order to avoid repeating the same mistake of the recent past, and they should not be too greedy as well.

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By Kamel Al-Harami

Independent Oil Analyst

This news has been read 6121 times!