Wells Fargo: $100 Oil Is Just A “Pipe Dream” At This Point (USO)

From Zainab Calcuttawala: $100 oil is but a “pipe dream,” according to a new investor note by Wells Fargo.

$100 per barrel oil remains a pipe dream” due to “massive overproduction,” real estate strategist John LaForge said in a note this week. Barrels price will bounce between $30 and $60 in the coming years, according to top bank’s diagnosis.

At the $40-$50 price range, crude prices will likely crater, LeForge said, “but [oil producers] are having a hard time restraining themselves from producing.”

Shale production has caused American output to stand higher than it did in 2014, before the oil price crisis began. Wells Fargo data shows current production at 15.5 million barrels per day, compared to 14 million bpd three years ago.

An $80 ceiling is also likely unattainable, LaForge said, “until the world’s oil producers stop overproducing.”

We continue to hear that big cutbacks are on the cusp of happening,” the analyst said. “The evidence, however, implies otherwise. And the longer oil prices remain low and range-bound, the harder it will be for prices to bounced above $60—as production costs have dropped significantly since 2014, which keeps more producers in the game.”

The Organization of Petroleum Exporting Countries (OPEC) agreed to extend a 1.2-million-barrel production cut last month, granting extended exemptions to Libya and Nigeria. Both nations had originally experienced serious output disruptions when the bloc agreed on the deal in November, but the African duo has boosted output since then. Nigeria’s production has almost completely recovered, while Libya’s aims for a 1.3 million bpd output by the end of the year.

The United States Oil Fund LP ETF (NYSE:USO) closed at $9.24 on Friday, up $0.06 (+0.65%). Year-to-date, USO has declined -21.16%, versus an 8.55% rise in the benchmark S&P 500 index during the same period.

USO currently has an ETF Daily News SMART Grade of D (Sell), and is ranked #70 of 130 ETFs in the Commodity ETFs category.


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