Tags: Higher | oil | gasoline | prices | pump | David Pursell | barrel

Analyst: Get Ready for $85 Oil and Higher Gasoline Prices

Analyst: Get Ready for $85 Oil and Higher Gasoline Prices
(Monika Wisniewska/Dreasmtime)

By    |   Monday, 04 May 2015 05:39 PM

For the past five months, drivers have enjoyed lower prices at the gas pump, but the mood in the energy industry has been grim.

Global oil prices are way down and despite a gradual rebound in recent weeks, most U.S. producers have, at best, resigned themselves to prices in the $50-$60 a barrel range or are, at worst, preparing for another swoon.

Some have even warned of prices touching $20 a barrel.

But energy analyst David Pursell is confident prices are going back up — all the way to $85 a barrel "by the middle of next year" and staying in that neighborhood for a few years.

"I love being a contrarian," Pursell told Watchdog.org after his prediction created a buzz at the Platts Rockies Oil and Gas Conference last week. "It’s more fun and more interesting, but we’re not contrarian to be contrarian. I’m actually surprised at how lonely we are in our call."

Not only does Pursell think he’s right, but he told attendees at the conference it’s one of the easiest calls he’s had to make in nearly 30 years in the business.

"This market gets tight really fast," said Pursell, who is managing director and head of securities for the energy investment and banking firm Tudor Pickering Holt & Co.

However, Pursell said there will be some short-term pain before the long-term gain, unveiling a chart showing U.S. oil production will slow considerably later this year and take a dive in 2016:

"All the signs point to production falling," Pursell said.

But then, Pursell said, the market will bounce back — and so will global oil demand.

"I think $85 [a barrel] next year is not crazy," Pursell told the audience in Denver.

That flies in the face of the conventional forecasts of many analysts, who point to stagnating demand in China — one of the world’s biggest oil users — and Europe.

But Pursell disagrees.

"India’s going gangbusters, China’s OK," Pursell said after delivering his presentation. "In the U.S., think about 3 percent growth on almost 20 million barrels a day. That’s a lot of growth."

The economic and political uncertainty in oil countries such as Venezuela and Nigeria — who have been hammered by the drop in prices — adds another factor for higher oil prices, Pursell said.

Like every analyst, though, Pursell’s prediction comes with some caveats — namely, that the price will be volatile — but he forecasts higher prices for an extended period.

"Think of a $65-$100 [a barrel] range through the end of the decade," Pursell said. "As you get closer to $100 what you worry about is oversupply in the market and you get back to where we just came from, which is lots of growth. We don’t need lots of growth, we just need some growth, and we think $85 is the right price to draw that."

Higher oil prices would mean good news for U.S. producers, who have taken it on the chin since the Organization of Petroleum Exporting Countries decided last November not to cut production, which sent oil prices into a tumble.

That's resulted in U.S. producers slashing rig counts by about half, laying off workers and leaving some smaller oil and gas companies vulnerable to bankruptcy or getting swallowed up by competitors with deeper pockets.

But if Pursell's prediction comes true, it would offer the industry some much-needed financial breathing room.

Oil prices were as high as $107 a barrel last June, but the price of Brent crude — the internationally recognized price — dropped into the low $50s in January.

On Friday, Brent was selling at $66.19 a barrel and West Texas Intermediate crude — the accepted price in the United States — was at $59.26.

But oil at $85 a barrel would make motorists pay more at the pump.

"What it means for people you’re talking to is that gasoline prices are going up," Pursell said. "Are we going to see $4 [a gallon] again? Probably not, but you’ll be well over $3, probably mid-3s at $85 [a barrel], so don’t rush out and buy the SUV just yet.

"Low prices are great for the economy because it means the average guy has more cash, you’re eating out more, you’re spending more, you’ve got more disposable income. But it will drive more jobs in the energy industry for sure if prices go up, so there is a little bit of an offset there."

Most analysts have been much more bearish about oil prices.

"We see prices at around $60 [a barrel] for the foreseeable future," Nicole Leonard, project consultant at Bentek Energy, said at the Platts meeting.

But Pursell stands by his prediction.

"This is the second-easiest call I’ve had to make," Pursell told the audience in Denver. "The first-easiest was that natural gas last year would go lower."

Pursell was right about that, as natural gas prices in the United States went from $6 per mcf [volume of 1,000 cubic feet] in the winter of 2013-2014 to around $2 today.

Rob Nikolewski is the National Energy Correspondent for Watchdog.org. He is based in Santa Fe, N.M. Contact him at rnikolewski@watchdog.org and follow him on Twitter @NMWatchdog.

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For the past five months, drivers have enjoyed lower prices at the gas pump, but the mood in the energy industry has been grim.
Higher, oil, gasoline, prices, pump, David Pursell, barrel, demand, energy, industry
Monday, 04 May 2015 05:39 PM
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