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Why Cornerstone Analytics sees $85/barrel oil by year's end

Tags: Oil

Goldman Sachs rattled the nerves of an already weary energy market earlier this week when it suggested oil prices could fall to as low as $20 dollars a barrel. But not everyone is bearish about the price of crude. In fact, there are those who are “very, very bullish”.

Mike Rothman, founder of Cornerstone Analytics is calling for $85 oil by year-end, citing research that shows oil will go from being in a slight supply surplus to a deficit in the coming months.

“The whole situation changes pretty significantly after this quarter,” Rothman told BNN in an interview. “We actually go into a deficit [of oil supply]. OPEC will not be able to produce enough oil to meet market requirements. And then for next year, for oil balance models even close to the mark, you’re in a deficit for the whole year. This is something most people are pretty unprepared for,” he said.

Rothman also said this would be the first time “going all the way back to World War II, where the oil industry as a whole has struggled to add supply.”

If Cornerstone’s call becomes a reality, the price would nearly double to levels not seen since October of 2014.

But other oil analysts tell BNN Goldman’s $20 call, even if it was a worst-case scenario, is far more likely to occur than a dramatic price increase. And that includes Citi’s Global Head of Commodity Research. In a separate interview on BNN, Ed Morse said “we think the price of crude will definitely have to hit the $20-dollar range in order to shut in production… production has to be shut somewhere and it’s likely to be in North America.” And that, he said, was because operating expenses are some of the highest in the world.

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