TD Ameritrade: Cordier Gives New Oil Price Forecast
James Cordier
Ben: Welcome back to Futures with Ben Lichtenstein. Traders, with OPEC’s recent decision to increase production, crude has been the focus for many. To help us take a look at the recent price activity in the energy markets and the impact from the recent OPEC decision, traders, we’ve got James Cordier, the President and Founder of OptionSellers.com, joining us this morning. James, welcome to Futures with Ben Lichtenstein. Crude rallied on the news but no follow through. Does this point to the decision having already been priced into the market? For the most part, was this move expected?
James: Ben, it’s really interesting, the movement in crude oil after the announcement. I think what OPEC and, of course, plus Russia was trying to do was give a soft landing. I think they’re very familiar with the fact that oil prices can’t continue to escalate as many U.S. economies, as well as in China and Europe, are slowing. We have PMI in Russia and both China not doing so well. Of course, we have China down 25% from their recent high and a soft landing is very important. Needless to say, having the market just fall out of bed is now what they wanted either, so we had a very quick $8 decline in prices. We’ve now rallied back about half of that and it’s possible that we’ll fall into a nice equilibrium here with plenty of supply but not too much to cause prices to go higher.
Ben: Yeah, it looks like we have a bit of a range forming up above 64 and below 73. James, I’m wondering, how much of a boost in production is to slow the pace at which they’ve been reducing inventories, and how much is to combat the reductions in production that we’re seeing related to sanctions and issues in Venezuela, because the $1 million increase in production isn’t going to be enough to balance off both.
James: It’s really not. You can add Libya to that last, as well. The fact that we had over compliance coming into this meeting allows both Russia and Saudi Arabia to actually pump more than what the report came out here 3 days ago. The fact that we’re talking only 600,000 additional barrels, that is not going to be enough, you’re correct, to take care of what’s coming offline in both Iran, Venezuela, and in Libya; however, there is a lot of fudge room right now available. The fact that both Russia and Saudi Arabia now have the green light to pump more oil, I think we’re going to see in the 3rd and 4th quarter probably closer to an additional 1 million or 1.1 million barrels. The 600,000 that was announced is not enough to slow down this market.
Ben: Yeah, it seems to be the case. We’ve been hearing a little bit about distribution issues as far as the WTI production as it nears that 11 million barrels per day level. Is some of the narrowing that we’ve been seeing in the Brent/WTI spread related to the bottleneck that we’re seeing in distribution?
James: That’s exactly right. What’s going on right now in the United States is we do have a great deal of new supply coming on, but there is a bottleneck and it is allowing the Brent/WTI to narrow. I think we’ve seen that just recently and we’ll probably see it narrow another dollar or two in the next upcoming weeks.
Ben: James, talk to us a little bit about what’s going on here as far as what you’ve been seeing and hearing regarding Canadian oil sands and the outage. Is this impacting the spread or impacting price at all?
James: Not as of yet, but it’s very interesting, the price of oil coming up and then the Canadian dollar coming down recently is a really interesting conundrum there. What’s going on in the Canadian oil sands will come out to play in the next several weeks. There hasn’t really been a big market moving affect there yet, but that will be coming up if it doesn’t get straightened out soon, I think.
Ben: James, I’m curious because everyone’s joking about OPEC plus one right now, meaning that Russia seems (continued)