WHERE IS THE OIL PRICE GOING?
Hedge fund manager Pierre Andurand of Andurand Capital, who predicted the 2008 oil spike and subsequent crash, told the Financial Times in early September that he believes oil can fall to as low as $25 to $35 a barrel this year, with the global market to remain oversupplied in 2016 and 2017.
Sasol is more bullish, forecasting an oil price of $50 to $60 for the financial year to end June 2016, price levels Constable describes as “sustainable”. Vitol Group, the world’s l argest independent oil trader, is predicting prices at between $40 to $60 a barrel into 2016, Bloomberg reported.
“$25 to $ 35 is not a sustainable number. Heck, if it goes down to $25 or $35, I’m going to buy more Sasol shares. [. . .] Because l onger term, [towards the] end of this decade, we’re all going to be making a lot of money in energy. You think of the hundreds of billions of dollars that have been pulled back i n capital i nvestment f rom the majors and ourselves − everybody for that matter – there’s nothing going on right now other than projects that are already in place.” Constable says prices will star t “turning up” by late 2017 as output from non-Opec countries decline by 10m barrels a day by the end of 2018. Adding conservative demand growth projections, 15m barrels a day will be required in this time frame. Prices will continue to “turn up through the end of the decade, which is perfect for us because the cracker [under construction i n Louisiana] comes online and we’ll see higher margins for our ethane-based chemical products, versus naphtha-based feedstocks in Europe”.
The wildcard is what Opec will do about production, says Constable. “If you look at most of those countries – where they are on their cost of production and their national budgets – they’re all in a world of pain. And they’re getting a little more noisy; they can’t take it much longer. So the wildcard would be − maybe not in the next meeting [December] but the meeting after [around mid-2016] - some type of production quota and a couple million barrels [cut] just to show some faith in the oil price firming up.”