A Look at Past Oil Projections and Where It Could Be Headed
Rigzone published an article in November 2011 that noted Auto Delinquency Rates (ADR), as tracked by TransUnion, were not suggesting the United States would enter another recession anytime soon. We also pointed to a historical pattern highlighted in an earlier article that was dichotomous regarding oil prices and demand. Specifically, this article posited that based on trading patterns from mid-Summer to early October, crude prices would likely rise while demand would fall as we entered calendar year 2012.
Following Up on Rigzone's Past Predictions:
First, TransUnion reported last month that the fourth quarter national auto delinquency rates continued to drop on a year over year basis. So, we now have another quarter under our belts with historically low ADRs sustaining. When you add on top of this an industry consensus calling for a strong year in auto sales, incrementally additional new loans will likely help ADRs remain low throughout 2012.
Second, one would have to have been in total seclusion to not know that oil prices have risen over the past six months. Specifically, since October 7, 2011 (the time of our first article noting the pattern at play), WTI front-month futures are approximately 25 percent higher, even better than the average 15 percent return that our analysis projected. When looking at month average oil prices, the front month contract averaged $106 per barrel during March 2012, up 24 percent from September 2011 average.
Third, global demand for crude oil is in fact lower. According to the U.S. Energy Information Administration (EIA), average crude consumption was 89.33 million barrels per day (MMbopd) during September 2011. For February 2012, the most recent month of reported data, crude consumption was 89.23 million barrels. We note that March demand has seasonally fallen relative to February levels. Over the past three years, the average drop from month-to-month was 0.56 MMbopd. Combining these two observations implies that March demand could fall by 0.66 million barrels or seven-tenths of a percent drop over six months.
Due to all the uncertainties surrounding the embargo with Iran, Rigzone does not have a near-term projection on future crude prices at this time.
The Wall Street Journal surveys some of the world's leading economist to get their views. In the most recently conducted WSJ survey from March 2012, 34 economists pegged the price of oil at $104 per barrel upon exiting 2012. Thus, signaling a consensus of little expectation for oil prices to end the year higher than current levels.
Having spent much of his career in the oil patch, Trey Cowan is a seasoned Wall Street analyst providing insights on both onshore & offshore oil field services. Email Trey at email@example.com.
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