Been a little busy with the new semester and other work, so another quick post just to put my thoughts out there on oil prices this year. So far, things have played out as I expected. First, there was some re-balancing in supply and demand that started last year, and inventories declined for an extended period. The problem, and it's the same problem, the Hedgies push prices up hoping this time is for real--meaning they believe the fundamentals have changed, and they push prices into the $60-$70 range hoping they will hold there. However, their actions create incentives for US shale to expand, and the higher prices stop the re-balancing that's needed to sustain higher prices. Instead, inventories are rising again, and prices have dropped.
For 2018, I see more volatility in prices for precisely the reason outlined above--there will be periods when Hedge Funds think markets are balanced (enough) and they bid up prices, just to have them fall back again. I think trading will range between the low $50s and the low $70s, but most of the time WTI should trade between $55-$65. As the US economy accelerates from the tax cuts, that will bring hope and higher prices, only to be dashed again and again...Same as it ever was, same as it ever was...
