Forrest Jones: Crude to Hit $100 a Barrel, But Sell the Rally

“This potential disruption is coming at a time where prices are already in the higher end. Unless we get a significant amount of capacity taken off the market, the chances are this sort of event [Tropical Storm Isaac] won’t have a significant from a medium-term point of view.” —Ric Spooner, chief market analyst at CMC Markets

Steel drums used as shipping containers for ch...

Steel drums used as shipping containers for chemicals and other liquids. (Photo credit: Wikipedia)

There are always “events” that, from day to day, prices: hurricanes, political unrest, Middle East tensions and threats, explosions (like the one in Venezuela last week), and so forth. But underlying these events is something much more predictable: the supply of oil coming to market is inexorably increasing, mostly from the US.

Here’s a quick summary:

According to Wikipedia, the US has 21 billion barrels of proven oil reserves. The Energy Information Administration (EIA) estimates that “technically recoverable reserves” are about 198 billion barrels.

But that doesn’t include the Bakken Formation in North Dakota. There, according to the EIA, there are another 503 billion barrels. And in Colorado and adjoining Rocky Mountain states there are another—ready?—2 trillion barrels of oil!

And this doesn’t include other finds around the world. This is just in the US.

Here are the official estimates: The US has

Oil expert Spooner added:

The global demand outlook (for oil) is for moderate growth at best and is well covered by supply capacity. (My emphasis)

I’m looking for opportunities to sell into the current strength anywhere from here on up to about $102 a barrel (for U.S. crude) and $120 a barrel for Brent.

It’ll be fun to watch as oil prices peak at $100 a barrel and then drop like a stone.

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