The Energy Report: Chen, last year you correctly predicted that oil could fall as low as $47/barrel ($47/bbl). What’s your outlook for the rest of this year and what is that based on?
Chen Lin: I’m not a technician, but I looked at North American production increases of 1 million barrels a year and knew it would result in an oversupply situation, especially in light of the world economy softening. It was a perfect storm for the energy sector. The rapid increase in the fracking production in North America has been phenomenal, but it had to result in lower prices, so a year ago, I started planning on $47/bbl oil just to put a rough number there. At that price, fracking will be curbed, and then we can get back in balance again.
A year later, that is right about where we are. Looking ahead, I see oil bottoming in 2015. As the price drop occurs, a lot of companies will go under because they are not sustainable.
TER: Are you worried about conflict in Yemen, Saudi Arabia and Iraq?
CL: Yes. Those are geopolitical factors, and they will likely keep a bottom for Brent crude. Between Brent and West Texas Intermediate (WTI), I’m actually more bullish on Brent than WTI.
TER: Do you think that that gap will widen or stay about the same?
CL: Geopolitics are very hard to predict. The gap may widen sharply this summer if oil storage in North America continues to fill up. That will be a perfect buying opportunity, a once-in-a-lifetime buying opportunity for domestic energy stocks, because WTI will go back up. You see, this is not a global supply/demand imbalance. We have all this oil in storage because the United States forbids raw oil from being exported. That artificially depresses the prices. …read more