With oil prices tumbling in recent weeks to around $46 per barrel, bearish sentiment is building. Bucking the trend, Bill Strazzullo, chief market strategist at Bellcurve Trading Inc., told CNBC in a recent interview that prices in the range of $80 to $90 per barrel are possible within the next "three, four, five years." In 2013, when oil prices were around $100 per barrel, Strazzullo made an equally bold, and ultimately correct, call that the price eventually would plummet to $30, which it did by January 2016, per data from Macrotrends LLC.

While $90 oil is significantly below the peak of $147.30 reached in July 2008, it nonetheless would have negative overall economic consequences. An OECD study from 2011, "The Effects of Oil Price Hikes on Economic Activity and Inflation," estimated that "a $10 increase in the price of oil could reduce activity in the OECD area in the second year after the shock by two-tenths of a percentage point and raise inflation by roughly two-tenths of a percentage point in the first year and by another one-tenth in the second year." In addition to reducing consumers' real incomes (via increased inflation), the OECD found that higher oil prices also are likely to reduce business investment and potential economic growth. 

Stocks Hurt in 2017

Among stocks in the S&P 500 Index, six of the 10 biggest losers so far in 2017 are in the oil business, with Transocean Ltd. (RIG), Hess Corp. (HES) and Andarko Petroleum Corp. (APC) leading the way downward, according to CNN Money. Through Monday's close, these stocks are down on average by 23.7%, respectively. A rebound in crude oil prices should help spark turnarounds, given that all three are in the exploration and production end of the oil and gas business. (For more, see also: Transocean (RIG) Q1 Earnings and Revenues Beat Estimates.) 

Source: CNBC

"Fair Value" at $60 Per Barrel

Strazzullo told CNBC that "the pricing structure has shifted dramatically lower" as "the market has become inundated with supply." He said that in 2012–13 the range was $30 to $140 per barrel, with "fair value" at about $90, while today the range is $30 to $90, with "fair value" at about $60. In the near term, Strazzullo said in his CNBC interview that he sees a trading range of $46 to $54 per barrel. The longer term recovery to about $90, he also told CNBC, is predicated on increasing demand as economies expand globally, especially in the U.S. and Europe. (For more, see also: Hess Corp (HES) Reports Wider-than-Expected Loss in Q1.) 

RBC Predicts Rise to $60

In line with Strazzullo's estimate that $60 represents a "fair value" for oil right now, analysts at Royal Bank of Canada (RY) are expecting $60 to be reached by year end, according to a CNBC interview with Helima Croft, head of commodity strategy at RBC Capital Markets. Croft told CNBC that high inventories have been depressing prices, and that we should start to see these stockpiles drawn down soon, as we leave refinery maintenance season, and as the summer driving season starts. She also anticipates a coordinated production cut by OPEC and non-OPEC producers, and warns that prices also can be given a boost by nervous traders if U.S. strikes in Syria boost support for hardline candidates in Iran's May 19 presidential election.

Refinery maintenance, or "turnaround," tends to be scheduled in the first quarter, prior to the conversion to summer fuel blends, as described by NACS, the National Association of Convenience Stores. Inventories of crude oil tend to build up during these maintenance periods (which also occur in the fall), depressing crude prices temporarily, as discussed by Market Realist.

"The New Oil Order"

Analysts at Goldman Sachs Group Inc. (GS) have set a base case of $50 per barrel, and see the price at just $54 five years from now, according to another CNBC report. Goldman's most important contention is that they see the price of oil stabilizing for the long term, returning to the environment prior to 2003, per CNBC. Jeff Currie, global head of commodities research at Goldman, talks about "The New Oil Order" in a featured video on Goldman's website. He says that this order has three elements.

First, with the oil shale revolution in the U.S., oil production is becoming more of a standard manufacturing process that can be dialed up or down in matters of weeks, a far cry from the era of offshore exploration with lead times measured in years. Second, on the demand side, with the U.S. nearing oil independence, it is no longer the marginal consumer. Instead, the U.S. now is part of what Goldman calls "base load demand," and the marginal consumers that now drive price spikes are in the developing world, in countries such as China and India. Third, regarding market structure, new sources of supply have eliminated much of the pricing power that OPEC used to have. The oil supply curve has flattened, Currie says, and the ability to dial production up or down quickly is contributing to greater price stability.

Production Outstrips Demand

Supporting Goldman's more bearish view for oil prices is a report from the U.S. Energy Information Administration (EIA) that domestic output is trending upward, and will reach a record 9.96 million barrels per day in 2018, as cited by Bloomberg. Worldwide, the EIA expects production to exceed demand by 0.17 million bpd in 2017, and by 0.11 million bpd in 2018. The EIA has lowered its projected average price for benchmark West Texas Intermediate (WTI) crude to $50.68 in 2017, and is keeping its 2018 forecast steady at $55.10 per barrel.

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