Is Oil Priced to Perfection Again?
We are disappointed by the recent move by oil to the low $40’s. We recognize that our price target of $65 has a sell-by date, that it is eroded every day by the secular technology revolution in fracking that we ourselves have celebrated. But in the cyclical timeframe, the shadows of the 2014-2016 crash – global CAPEX underinvestment and OPEC cuts, and political instability in producer nations – argue for higher prices. The seeming surge in US shale production is the exploitation of low-hanging fruit, and cannot be extrapolated. Seemingly high inventories are in part due to hedging at the onset of unanticipated supply cuts, and are now beginning to come down in a season when they should be rising.