Last year forecast for oil was quite accurate between $60 and $35.
What is the news for this year? Apart possible black swan (war, major terror attack – possibility quite high 50%), quite a similar pattern.
Probably a low around USD$20 around February (due to oil seasonality)and then an end of year on USD$40’s (range USD$ 20-50) with a seasonal spike around September.
But mostly you need to look at the potential geopolitical consequences of low oil price.
Russia Government Budget USD$ 110 – Break even cost $20
China Government Budget USD$40 – Break-even USD$30 (not many know that China is the 4th largest producer – a big importer, but under USD$40 more pain than gain)
Iran Government Budget USD$70 – Break-even USD$25
Saudi Arabia Budget USD$100 – Break even USD$10
Iraq Budget USD$80 – Break even USD$12
Venezuela and Nigeria are already on the verge of economical implosion (and Nigeria would trigger a 175 million emigration wave towards Europe!).
So, unless a geopolitical event happens, oil is quite trapped and not looking to go anywhere soon fast.
Why? Saudi needs oil lower to get the US shale oil out of the way and keep Iran at bay (Iran has a very well trained army of 2.25 million versus a miser 250,000 army of Saudi).
Thought of the day
I never liked the Saudi regime, but one stats makes you wonder:
Saudi Production 2005: 9.7 million barrel a day
Saudi Production 2015: 10.2 million a day
US Production 2005: 4.5 million a day
US Production 2015:9.1 million a day
So who is flooding the market and why. That is an interesting thought for a different post.
