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Emad Mostaque has had a profound change of heart on oil prices. The analyst with London-based consultancy Ecstrat says US$130 per barrel crude could be less than a year away for the European benchmark as lower prices drive demand in both emerging and developed markets, while a weakening stream of capex dollars constrains new exploration and production.
“What we are seeing is supply is about to roll over dramatically. Demand is continuing to rise,” he said an in interview with BNN.
Unlike many analysts, he says U.S. shale production is set to decline, and as such won’t provide the necessary stop-gap to supply the increasing appetite in world markets.
“U.S. production is about to have a Wile E. Coyote moment where it literally falls off a cliff. One-hundred-and-twenty-thousand barrels, maybe even next month, will drop off,” said Mostaque. He says the notion that shale producers can suddenly boost their output as needed is a common misconception.
The controversial call pushes against bearish sentiment from Wall Street titans like Goldman Sachs. The investment bank’s head of commodities research, Jeff Currie, said last month that he does not see the price of oil breaking above US$50 a barrel in the next year.
Mostaque was early to bet against oil, forecasting between US$50 and US$70 per barrel last summer. He raised concerns about the commodity’s price stability before oil started its dramatic decline in 2014.
Now he’s calling prices to rally as four to five million barrels disappear from global markets over the next four to five years, and throwing cold water on many of the scenarios where inventories remain oversupplied long-term.
Mostaque says the lack of capital means the estimated $30 to $40-billion annual price tag to ramp up Iranian oil most likely isn’t in the cards.
“What we think is happening right now is we’ve seen mass definancialization of the market, with Brent in particular. All of these massive funds have exited because they lost huge amounts of money,” he said.