Noted Citi Energy Analyst Forecasts $20 Oil; And An End To OPEC; Time To Go Long Gold?

Noted Citi Energy Analyst Forecasts $20 Oil; And An End To OPEC; Time To Go Long Gold?

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John Melloy, writing on this evening’s CNBC website, notes that the investment firm, Citigroup, is forecasting oil will fall to $20 per barrel; and, the end of OPEC may be near.’ Edward Morse, “one of the more influential analysts in the energy space,” Mr. Melloy writes, asserts that the recent spike upwards in prices, “is nothing more than short-covering; and, is in response to cuts by energy companies,” (shutting down of wells – the most in one month in nearly thirty years last month). It’s impossible to call a bottom at this point, which could as a result of oversupply and the economics of storage, fall well below $40 a barrel for West Texas Intermediate (WTI) — perhaps as low as the $20 range for a while,” Morse said. “The recent rally in crude prices, looks more like a head-fake, than a sustainable turning point,” Mr. Morse argues.

“WTI crude has surged 22 percent to almost $33 per barrel; and, fell below the $44 per barrel level,” last month; and, prices are still down 46 percent over the last six months,” Mr. Melloy wrote.

“Citi’s official forecast for when [where] oil will end the second quarter of this year, (after that possible drop to $20), is now $35 per barrel, down from a previous forecast of $47 per barrel. WTI, will then rebound to to the end of 2015 to $57 per barrel. Oil will climb to $66 per barrel in 2016,” Mr. Morse forecasts.

Should you be interested, Mr. Melloy writes that “ProShares UltraShort Crude Oil ETF, and, The PowerShares Crude Oil Double Short ETN, are inversely correlated with the returns for crude.”

“The call for another extreme drop; and, then an extreme rebound, is similar to what Goldman Sachs told clients at the end of last month,” Mr. Melloy notes, “when the firm predicted oil would fall to $39 per barrel at some point in the first half of this year; and. then recover to $65 by year’s end,” FYI, Abigail Doolittle, of Peak Theories Research, told CNBC late last year, that her worst case/nightmare scenario for oil was at the $13.65.

“Citigroup calls the development of unconventional oil sources such as shale, oil sands, and deep-water drilling, “the most disruptive geopolitical factor in markets since the 1970s/”

“And,despite the best efforts of OPEC, and Saudi Arabia not to cut production; and, accept lower prices in order to pick up market share, the horse is already out of the barn,” Mr. Melloy wrote. “As soon as the price rebounds, these sources will continue to provide competition for OPEC, which has lost two of its biggest customers, possibly for good,” according to Mr. Morse. “Saudi Arabia exported 1.6M barrels per day to the U.S.in 2013; and that total was cut in half this past winter to 800K barrels,” according to Mr. Morse. “Exports to China have also been cut in half,” he says.

“Markets have, in Citi’s view correctly depicted the heart of the lower price oil environment as a result of the conflict between markets and marketing influence; or, more directly between the impacts of the shale revolution — on OPEC’s ability to drive a significant, ‘permanent’ wedge, well above production costs to maximize revenues to OPEC, and other — oil producing countries. No matter what the ultimate outcome,” Mr. Melloy concludes, “it looks exceedingly unlikely for OPEC to return to the old way of doing business. While many analysts have seen in past market crises ‘the end of OPEC,’ this time around might well be different.” Wow. Certainly going to be interesting.

If Former Fed Chair Greenspan Is Right About Greece Inevitably Leaving, Or Being Forced Out Of The EU — Gold Should Get A Bid — Especially In Euro Terms

That’s according to Dennis Gartman, Editor and Founder of the well-respected and long-running, The Gartman Letter. Interviewed on CNBC’s Fast Money this evening, Mr; Gartman said he was a buyer of gold — in Euro currency or terms. He has good company and I think those who are forecasting the yellow metal to do well — are anticipating that the fear factor on Wall Street will grow — the closer and closer we appear to a Greek exit. And, add Vladimir Putin’s bellicose behavior with respect to Ukraine, and the Islamic State threat, investors may well decide to seek some safety in their portfolios; and, add some precious metals — should the geopolitical situation continue to deteriorate. Probably not a bad idea. There are several gold ETF’s out there, such as the GLD, if you are so inclined. V/R, RCP

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