According to UBS, the oil price should recover to $100 a barrel, a level that would make further oil exploration viable.
In a recent research note, Morgans chief economist Michael Knox suggests that the oil price “will only stay low while the U.S. dollar is rising.”
“The popular view is that the oil price is falling because of rising oversupply. Were that true, this oversupply would drive inventory levels up. But what we see in the U.S. is that the oil price has been falling where the inventory levels have been falling. This means that there must be some other cause than excess supply causing the decline in the oil price,” he said.
According to Knox, the falling oil price has resulted in “one of the fastest rises in the US dollar since the early 1970s…Once the US dollar ends this major move, the oil price will go back to being driven by normal fundamentals of supply and demand.
Our view is that the normal levels of supply and demand suggest a price of Brent oil of more than $100 per barrel.”
Knox argues that this will occur early next year, warning that “those who think that oil prices are going to stay low may be dramatically disappointed.”
For Asia though, the lower oil prices could not have come at a better time.
