Compressed oil prices are probable to recover in the next half of the year, likely moving up as high as $85 per barrel, said energy analyst Michael Rothman, on Monday. He also stated that any move higher won’t be an outcome of organized production cuts either.
During the late morning session, West Texas Intermediate crude dropped about 5 percent to under $32 per barrel, as expectations for a deal with OPEC countries and Russia to decrease output hung in the balance. A crude output reduction “was never going to happen, the notion that [OPEC and Russia] would agree to reduce their output and help support prices was a nonstarter,” said Rothman, founder and president of the Cornerstone Analytics research firm.
Whereas the bear case looks robust, “prices are not going to stay this low for an extended period of time,” Rothman said. He expects there are a number of factors establishing the other side of the oil trade. “Most budgets for the OPEC countries can’t be maintained at this level,” he announced . “Even the Saudi budget is built on almost $100 price for break-even, which is why they’ve been dipping into their reserves.” Thus, when will the recovery start?
Rothman states that $85 per barrel crude is just a few months away. “We’ll actually start to see it when we get past the winter. We’ll see inventories being drawn down, which most people you’re going to talk to aren’t expecting,” Rothman continued. “That’s really the bottom line of where supply and demand meet,” he suggested. “I expect that the sentiment is [then] going to shift.”