Don't Expect Oil Prices to Break $50 Until Q2 - FirstEnergy Capital

The “stability for now, upside later” argument for crude oil prices appears to be holding true for both WTI and Brent pricing, which has done little to set any directional bias so far in 2009. But one thing FirstEnergy Capital analyst Martin King says he can be sure of, is that his call for the price bottom in mid-December remains correct.

“This is a market, though still dealing with some oversupply issues at Cushing, Oklahoma, that has begun to realize that corrective forces are at work,” he said in a research note, adding that OPEC production cuts is a powerful force that is finally getting some attention. “If anything, these cuts look to be more serious than many market pundits originally thought.”

FirstEnergy’s optimistic view that the cartel could take up to 2.5 million barrels per day off the market between the end of the third quarter of 2009 and the end of the second quarter of 2009 has been raised to 2.3 million barrels.

Mr. King said:

We see this as being sufficient to bring balance to the market by the middle of the this year, especially given that non-OPEC supply is likely to under-perform many of the optimistic Street forecasts.

While OPEC’s production cuts have resulted in U.S. imports trending downward erratically since late in 2008, the analyst expects that imports will go much lower as the refinery maintenance season gets going in the next few weeks. In fact, he wouldn’t be surprised if imports dip below the five-year range before making a seasonal recovery going into the summer.

With imports falling, U.S. crude oil stocks continue to rise materially. But Mr. King attributes this to refiners that continue to run well below historic averages as they wait for signs of concrete macroeconomic and end user demand stabilization.

He said a series of elements need to be in place for oil prices to make a convincing run and break out above $50 per barrel. They include steady to declining oil inventories, stronger refinery crack spreads, declining contango, a closing of the Brent premium to WTI, declining days of inventory cover and some macro stability.

FirstEnergy does not see prices getting to this range until later in the second quarter of 2009. Mr. King sees the upside theme after stability coming when negative economic data and sentiment subsides somewhat, which will allow some focus on OPEC supply moves and the emerging of what may be a poor performance for non-OPEC supply this year.

Comments

[ROLEX18K:]

I think in 2009 we will speak more about 20-30$ Oil than 50$, but market is the market, there is no free lunch and some major world event can take prices to 50-60$ in few days but in general the major trend is down.

Jan 30 09:38 AM

[bryanz:]

The last two times oil got rejected at $50 it headed below $35. The rejection off $50 this time, the price drop looks much more shallow. It will be interesting to see if it drops convincingly below $40 but the oil bulls definitely seem to have put up a fight.

Future cuts in production, even considering the oversupply that's got oil tankers being used for storage, seem to be making the bears cautious?

Looking at the 3 month chart, oil has made a series of higher lows since December. A break below $35 would be a strong sign for the bears. If it can hold above approx $37.50 on this latest down leg, it may be a buy signal (at least until it gets rejected at $50 again).

Jan 31 03:49 AM

[aware:]

If oil goes up in the spring in the highs that it was that will push this country off a cliff.The only reason you have not seen any civil unrest is the people still have alittle bit of breathing room.I live in N.Y.and they are getting ready to tax us to death.The MTA is going to raise all bus and tolls which are to high now.The system is going to make us pay for their mismanagement of this country.We have been told by goverment that we have to contribute.The people have done nothing but give.How much do they want to take?I lost almost all my retirement because of thiefs and mismanagement of this country, like many except the rich they don't want to touch the rich.I can only say the people will only take somuch,so keep pushing, keep pushing.

Jan 31 10:32 AM

[261133:]

You are right.


On Jan 31 10:32 AM User 271917 wrote:

> If oil goes up in the spring in the highs that it was that will push
> this country off a cliff.The only reason you have not seen any civil
> unrest is the people still have alittle bit of breathing room.I live
> in N.Y.and they are getting ready to tax us to death.The MTA is going
> to raise all bus and tolls which are to high now.The system is going
> to make us pay for their mismanagement of this country.We have been
> told by goverment that we have to contribute.The people have done
> nothing but give.How much do they want to take?I lost almost all
> my retirement because of thiefs and mismanagement of this country,
> like many except the rich they don't want to touch the rich.I can
> only say the people will only take somuch,so keep pushing, keep pushing.

Jan 31 01:13 PM

[261133:]

You are right. The problem is, the rich are always complaining about paying to much tax on capital gains and of course income tax and that too many people in this country don't pay any taxes at all but collecting welfare,unemployment benefits etc.
The bitter truth compared to modern civilizations the american welfare or social security and healthcare system is a joke, to say it friendly. But a better system costs more and this would have to come out of the riches pockets by increasing income tax and social security tax.
The Europeans for example have a high gasoline tax, but a fantastic public transport systems and very inexpensive, so at least you have an alternative. They also have affordable housing and no such thing like property tax, what really hurts low income, unemployed and the elderly.
I do not say there system is better over all, because it has a lot of disadvantages too , I know that well , because I leaved there for the better part of my live, but what I am saying is, the US could do a lot better without doing the mistakes the EU did. But even with the messias in the white house it is same old and there will be no change.


On Jan 31 10:32 AM User 271917 wrote:

> If oil goes up in the spring in the highs that it was that will push
> this country off a cliff.The only reason you have not seen any civil
> unrest is the people still have alittle bit of breathing room.I live
> in N.Y.and they are getting ready to tax us to death.The MTA is going
> to raise all bus and tolls which are to high now.The system is going
> to make us pay for their mismanagement of this country.We have been
> told by goverment that we have to contribute.The people have done
> nothing but give.How much do they want to take?I lost almost all
> my retirement because of thiefs and mismanagement of this country,
> like many except the rich they don't want to touch the rich.I can
> only say the people will only take somuch,so keep pushing, keep pushing.

Jan 31 01:30 PM

[777:]

In my opinion, 35$ was a dream but it had come true, and 25 is another dream when everything became free.
After all, oil is so important for industy and ecnomic recovery. I think 50$ is resonable after christmas season and chinese lunar new year.

Jan 31 02:14 PM

[The Phone Man:]

OPEC cannot sustain anything less than $60 to $70 a barrel forever. It costs them at least that much for costs; exploration, equipment, etc.

Oil is the safest place to invest your cash right now. You simply have to be ready to hold it for 2 to 3 years.

Look at the stock symbol OIL

Jan 31 09:45 PM

[frankinstein:]

all thease people out of work has to have some impact on oil.
what happens when thease people find jobs and begin to use more gas?
do prices then go up?

Feb 01 04:14 PM

[upgrayed:]

If you knew what you were talking about you would have gotten rich on the move from 140 to 40 and retired by now.

Feb 02 08:17 AM