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Hofmeister looks for WTI to climb toward $100, while Morse sees one scenario at $20

John Hofmeister, former Shell Oil Company president, was on BNN today predicting the return–sooner than later–of much higher oil prices due to increasing decline rates, particularly from shale wells, increasing capital constraints and the recent dramatic decline in rig count, all factors that point to falling oil production in the U.S.

John Hofmeister - Energy

John Hofmeister, former President Shell Oil Company

“We’re going to see declines impact prices mid-year,” Hofmeister told BNN. He said he expects to see equilibrium return mid-year, when declining supply and a growing demand will start to catch up. Hofmeister said he expects to see high oil prices through 2016. “[Oil companies] will increase their cash reserves late 2015 through 2016,” Hofmeister told BNN. He sees capital expenditures coming back in the 2017-18 period.

Hofmeister said Saudi Arabia is the only “flex producer” in OPEC that has the ability to turn on more production. When asked about Iraq’s fast growing oil production he warned of the country’s geopolitical instability: “Who knows what kind of violence may see its way into the southern Iraq producing zone.” Another analyst on BNN said “we’re in the very, very early stages of banging out a bottom.”

“Over the next several years, as demand growth approaches 100 million barrels a day and the industry production falls short, yes, I believe later this decade we’ll see $5 a gallon [gasoline] and possible shortages of fuel in some parts of the world,” Hofmeister recently told USA Today.

Edward L. Morse, Citi Research

Edward L. Morse, Global Head of Commodities Research, Citigroup

Meantime, Citigroup’s Global Head of Commodities Research, Edward Morse, called for a “W” shaped recovery for oil, saying $20 per barrel oil could come in one scenario due to an oil glut, BNN and USA Today reported. “‘It’s impossible to call a bottom point, which could, as a result of oversupply and the economics of storage, fall well below $40 a barrel for WTI, perhaps as low as the $20 range for a while,’ Morse told clients,” according to USA Today.

OPEC raised the level of projected demand for its own oil today and lowered its non-OPEC supply forecast. WTI closed at $52.40 on Monday, Brent at $58.02, both off slightly.

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Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.