April Crude Oil Forecast from NOESIS:
Crude Oil Price Forecast- The price of crude oil has been increasing on pure speculation! There has been no significant change in world supplies, demand, or U.S. inventories. Since there is no real increase in demand on the part of refineries, the only demand driving prices is the demand created in futures trading. When futures prices increase and hold, spot prices follow. Many contract prices are keyed to the spot market price of WTI and North Sea Brent, so when spot prices go up, so do crude oil contract prices.
Last week's increase of 3.6 million barrels was entirely related to the refinery shutdowns in California. West Coast inventories of crude oil increased by 4.4 million barrels. Inventories in the other regions decreased. Overall, the shut down refineries simply continued to receive oil produced from California fields into their storage areas even though they were not processing the crude oil. And other refiners increased receipts in preparation for making more gasoline to supply the short market. These activities have no impact on the world supply and demand for crude oil, since California refiners refine primarily Alaskan and Californian crudes.
Last year, in the March to April period, the spot price of crude oil increased from about $12.70 to $17.00. During that period U.S. refiners filled tanks to the brim. Then the purchasing stopped and the price of crude oil dropped back to $12.70 in May and leveled out at about $13 to $14 for a few weeks. So far, it appears that refiners are resisting tanking up on crude oil this year. If they continue to pace purchases, they may be able to sustain prices at the higher level, even though the increases were artificially created through speculation on the futures market.
The real test will come when those who own futures contracts must decide to sell or take delivery. A rush to sell futures could bring the prices back down since there is really no other significant, additional refinery demand supporting the current pricing.
Exploration and production will continue to decrease as the world adjusts to new, reduced budgets, and continues to try to use up all of the oil already produced and stored in various storage facilities around the world. Increased demand for these services will probably not occur until the year 2001. Some companies, however, will do very well in the current market as others either sell out, close or merge with competitors.
Right now, there is no reason to modify the March forecast for crude oil prices.
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