Raymond James (RJF) Forecasting $65 Oil in 2013 as U.S. Domestic Producers Supply Lower Demand:
January 7, 2013 - The Wall Street Transcript .
In the following excerpt from the Oil & Gas: Refining, Independent and Major Integrated Report, the co-head of E&P research for Raymond James Financial (RJF) discusses the outlook for the sector for investors:
Q: It's your hypothesis that oil market fundamentals are going to dramatically deteriorate over the next six months. What factors are going to contribute to that deterioration in your view?
A: The RJ house call for commodities on both oil and gas are, one, we think that supply in the U.S. on the oil side has been growing pretty robustly, and we could add an incremental 3 million barrels over the next five years. Secondly, on the demand side, what we see is - or what we know is - that the U.S. economy is not growing rapidly. There's risk to potentially going into recession if we fall off the fiscal cliff. And we know Europe is having their own macroeconomic issues, and there are big concerns about China slowing down. So we think that higher supply in the U.S. and weaker demand globally could come together and manifest itself in the most obvious sign of exploding oil inventories in the next six months, and those higher inventories then will push oil prices down. So using our bottom-up, play-by-play oil model, we think to get going with the slowdown you need to see pricing average $65 for 2013.
On the gas side, we know last winter was extremely warm, causing prices to collapse. It would have been worse had we not seen up to 10 Bcf/D of coal to gas switching on the power side. Industry did its part by dramatically curtailing most dry gas drilling in 2012. And now, heading through into this winter, we think that better year-on-year comps on the gas storage side will firm up an improving gas picture. Weather data has not entirely cooperated though so far, so some industry players are suggesting that supply finally could roll given the lower spend levels of 2012, though our model...
The other firms missed the point that everyone in the US got a big pay-cut for 2013 (as payroll tax was increased). The other firms missed the fact that US government spending cuts would destroy GDP and consumer sentiment.
Poor US consumer sentiment = less spending = fewer jobs = American and Chinese and world-wide recession = $33 oil is very possible. Even lower is possible.