Another week, and another record high for US oil inventories. Oil prices clearly have some way to go, before they return to being based on the fundamentals of supply and demand.
Thankfully, the looking-glass world of $100/bbl prices has finally begun to shatter over the past 9 months. And we can expect prices to return to historical levels, averaging less than $50/bbl.
This, of course, is excellent news for consumers. High oil prices destroy demand, as they increase fuel and heating bills and leave people with less cash to spend in other areas.
But it is also good news for the global economy. It marks the start of the Great Unwinding of central bank stimulus policies. These have destroyed the price discovery mechanism in oil and other critical markets.
There have so far been 3 stages to the oil price collapse since I forecast this development in mid-August:
- The first stage saw prices reach our initial forecast target of $70/bbl in November
- They then fell further to reach our second price target of $50/bbl in January
- Since then, prices have been trading in a wide range. Daily moves of $2/bbl, up and down, have been common
This volatility is understandable as very few traders, producers, consumers or analysts had forecast the collapse. Many have been struggling to make sense of what has been happening.
As we move into the spring, it seems likely that a 4th stage will develop. This will continue the process of taking prices back to their historical level around $30/bbl – as I describe in the enclosed new analysis for ICIS Chemical Business.
Please also click here to view my interview with Will Beacham, Deputy Editor of ICB.
FREE OIL MARKET WEBINAR ON TUESDAY 17 MARCH
Oil prices, and China’s new economic direction, will be the main topics in our next free ‘pH Report’ webinar on Tuesday 17 March. This will include a Q&A to enable discussion of the critical questions for your business and investments.
I hope you will be able to join us.