Oil moves below $55 and testing $50 a barrel

Oil has settled below $60US per barrel testing the economics of shale production in North America, and oil sands production in Canada while presenting some very interesting investment opportunities in equities.

RBC Capital Markets and CIBC World Markets predict prices will remain below $60 for the first three months of 2015. Societe Generale SA’s Michael Wittner forecasts an average of $64.50 in the first quarter and $61.50 in the second.

Regardless it appears there is continued volatility in price and how low it will is anyone’s guess and one can find a variety of low price forecasts from $43 by J.P Morgan, to as low as $30. Is that sustainable? Not likely, and a price recovery will follow.

In terms of Saudi Arabia, there is plenty of chatter about how low Saudis Arabia’s production costs are and they could drive the price to $20 and still make money. However, keep in mind that Saudis Arabia is a oil export dependent country, and their desired price of oil has more to do with overall expenses (spending) in Saudi Arabia to maintain the country. For Saudis Arabia the concern it is about revenue losses rather then profitability of production. In comparison, in the USA the lower price of oil will have a negative impact on higher cost shale producers,  but a positive impact the overall US economy at a time when the US economy is showing strength.

The low price also represents some significant equity  investment opportunities in the energy sector, as low prices are likely not sustainable under $55 a barrel.