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Bulls Eye $100 Brent and WTI Futures for 2018

By Patrick Higgins  |  03/10/2017 12:28
Increasing signs of the global oil glut receding has influenced some bullish investors to bet that global oil prices will hit $100 per barrel in December 2018. Though the likeliness of this occurring is arguably questionable. The brent crude future hit its highest point in two years last week, still failing to hit $60. The slim prospect of a return to $100 per barrel has driven futures in this time-frame to bargain-level prices.
 
The rise in oil prices last week can be attributed to tension from the Iraqi Kurdistani independence referendum. Which lead to Turkey threatening to cut off a pipeline that transports Kurdish oil from Northern Iraq to Ceyhan (Turkey). No action has yet been taken.
 
Lots for $100 calls in December 2018 are currently around 30,000. This is at roughly the same level as the $60 calls for December this year. Additionally lots for $90 calls for December 2018 have also generated interest from investors.
 
Bulls may be reassured by the fact that daily global oil consumption is predicted to cross 100million bpd threshold next year. The OPEC and 11 associated producers (including Russia) are still committed to cutting output by 1.8million bpd daily, starting March 2018. These reductions were initially created in an attempt to counter the oil glut. The glut has only recently provided signs of receding after three years of persistently low prices.
 
Some international oil producers are worried that US shale and oil firms may increase production if prices were to rise above $60. Similarly US oil companies fear an oversupply of oil cutting into their profits. In this case, US producers would likely attempt to balance the oversupply with the demand. This would not be unlike the somewhat ineffective attempt made by OPEC and related producers last year.
 
This is despite the fact that the US oil industry would relish the chance to seize open market shares from OPEC and Russia.  Additionally, many oil companies have cut back on their exploration and development budgets in the last three years due to the glut.  If demand projections do hit 100 million bpd in 2018, the last remnants of the glut may very well disappear. In which case we could see oil prices and exploration budgets explode upwards once again.  The probability of success for such bullish bets such as calls on $100 futures may be a bit too early to predict, but keep a sharp eye on Brent and WTI prices throughout 2018.

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