This is my first DD, so looking for more input and opinion on this.
Looking at the current price of Crude Oil being the highest it has been in almost 10 years, (It reached a high of $112/barrel in 2013), I believe that the price of oil is due for a correction in the long term (3-6 months) or even earlier. The reasons why i think a correction is due are as follows:
The US refineries are not operating at 100% capacity. Link from EIA below
The current price compared to the production cost of 1 barrel of oil makes it lucrative for wells to start pumping oil. See article link attached.
Russia might be restricted by sanctions for now, but Iran crude oil that has been sitting in the sidelines due to nuclear sanctions could be coming online soon if a deal is reached. Link to article below.
These are my top three reasons for expecting crude oil price to come down. Feel free to update and provide more input and or objections.
Thanks all!
Applicable links to news articles or Reddit analysis:
Interesting thesis. Perhaps a #4 to add to the list - Iran has been stockpiling oil in tankers in anticipation of sanctions being lifted with a nuclear deal.
Once Iranian oil is online, it could even allow sanctions on Russian oil, that everyone has been extremely reluctant to do for obvious reasons.
The amount of oil on tankers has jumped by 30 million barrels since early December to 103 million barrels, according to analysis firm Kpler. The increase comes as diplomats in Vienna work on a deal to limit Iran’s nuclear program in return for easing sanctions that have kept it from selling most of its crude.
While the Persian Gulf country will need a few months to ramp up fields that have under-produced for more than three years, it could start selling oil from storage almost immediately once sanctions are relaxed. The increased flows may help to temper crude prices, which have soared more than 20% this year to almost $100 a barrel.
Within months of a deal, Iran could restore about 1 million barrels a day of supply to global markets.
What does this mean? On one hand, Russia’s daily contribution to world consumption is ~5M barrels. On the other, a) the EIA anticipates a surplus of 2-3M barrels a day and b) Iran can bring ~2M barrels online in a month or two. So the reduction of a significant chunk of the ~5M barrels from Russia could be made up for by the 2-3M surplus + the ~2M from Iran. (China, Venezuela etc. will probably keep buying Russian oil.)
There would be balance in the world of oil again, which producers want, and Russia could be sanctioned in where it will hit them the hardest, next.