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Peak Oil Review – 11 April 2016
By Tom Whipple
Quote of the Week
Many traders and fund managers believe that the $26 bottom we saw on February 11th was the end of the nearly two-year price decline and are ready to buy into oil futures on any good news. Other traders continue to warn that the oil production remains relatively steady, oil stocks are still close to an all-time high, and that the OPEC meeting likely will turn out to be meaningless for global production. There is still talk that storage capacity is running short in some areas which could lead to a downturn in prices once again. New York futures closed the week at $39.72 and barrel and London at $41.94.
US natural gas prices jumped 10 cents per million BTU’s on Friday to close above $2 for the first time in nearly two months. The move was attributed to cooler-than-normal weather in the Northeast and came despite US natural gas stocks increasing to 2.48 trillion cubic feet, a record for this time of year. Prices have been at historic lows in recent weeks because to the continuing glut of natural gas which is 54 percent larger than normal for this time of year. The low prices are starting to lure speculators who see the bottom as being reached and the prices have nowhere to go but up.
Last week the infamous Keystone pipeline, which moves 590,000 b/d of Canadian crude to the US, ruptured in South Dakota. The leak released about 17,000 gallons of crude but did little environmental damage. After a week of repairs, the pipeline was to reopen at reduced pressure over the weekend. Due to the glut of oil I US storage facilities, the markets largely ignored the one-week shutdown.
Goldman Sachs published an interesting theory last week that a price of $35 a barrel is the ideal “Goldilocks” price for US crude oil. The idea is that prices around $30-35 a barrel are enough to keep many oil producers in business until the markets are again rebalanced, but is not high enough to stimulate a surge in production that will only prolong the glut.