Gary Shilling, economist and founder of research firm A. Gary Shilling & Co., said oil will resume its slide to $10 to $20 a barrel following its May and June rebound.
“Recent gains have little to do with the fundamentals that led to the collapse in the first place,” he writes for Bloomberg View
. “Wildfires in the oil-sands region in Canada, output cuts in Nigeria and Venezuela due to political unrest, and hopes that American hydraulic fracturing would run out of steam are the primary causes of the recent spurt.”
Crude had collapsed
to a 13-year low of about $26 a barrel in February before rebounding to about $50 this month. The U.S. boosted its energy output to multidecade highs with hydraulic fracturing technology that squeezed oil and gas from shale beds that had been dormant.
“American frackers have replaced the Organization of Petroleum Exporting Countries as the world’s swing producers,” Shilling says. “The once-feared oil cartel is, to my mind, pretty much finished as an effective price enforcer. Even OPEC’s leader, Saudi Arabia, is acknowledging the new reality by quashing recent attempts to freeze output, borrowing from banks and preparing to sell a stake in its Aramco oil company as it tries to find new sources of non-oil revenue.”
Meanwhile, global demand for energy has weakened with the slowing of economic growth, he says.
“And don’t forget the crucial influence of inventories on prices,” Shilling says. “After all, with global output exceeding demand, the extra crude goes into storage. And when the storage facilities are full, the surplus will be dumped on the market to the detriment of prices.”
Large and mid-sized U.S. independent producers are surviving and eyeing growth again as oil nears $50 a barrel, confounding OPEC and Saudi Arabia with their resiliency, Reuters reports
“That shale giants Hess Corp., Apache Corp. and more than 25 other companies have beaten back OPEC's attempt to sideline them would have been unthinkable just months ago, when oil plumbed $26 a barrel and collapses were feared,” according to the news service.
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