Oil @ USD25-USD40 For The Next 2 Years
The Premise - Oil like other commodity has been in a sharp down cycle, as in any commodity cycles, they are bound to turn up. Usually the the U curve of these commodity plays lasts anywhere between 2-5 years. If we look at the basic commodities, they have been on a downcycle since the subprime crisis in 2008 - since there had been easy money and over investment in particular by China. However oil held its own and in fact went to as above USD110 in 2013. Since then it has fallen to USD30 as of early February 2016. Picking Bottoms - It is hazardous to say the least but at USD30 we are probably in the last quartile of correction. The justification being the cost of production. The cost of production below was in 2014, as of today we can impute a higher cost of between 10-20% based on weaker economies of scale and USD strength. Cost of Production By Country - We can surmise that Saudi Arabia wanted to crush Iran and the latter’s cost of oil extraction is between USD15-16, which woul...