Long-term June 2017 Nymex Light Crude futures (CLM2017) is approaching its medium-term target of $54/barrel*, maintaining a premium of about $10/barrel over current delivery. Expect support at $54, but the long-term target could be as low as $36**.
* Target calculation: 60 – ( 66 – 60 ) = 54
** Target calculation: 66 – ( 90 – 60 ) = 36
The Saudis have been the OPEC member willing to cut production in the past to keep prices up. As a result, while OPEC share of world production has dipped to ~33% due to the U.S., Saudi market share has dropped also due to OPEC members not adhering to their quota. Now the Saudi’s are engaged in a game of chicken to see how low the price of oil will go. They have said that even $20 is acceptable to them. The chicken out price will be when the cash flow, after the wells are drilled and pipelines laid, drops to zero. This estimated price varies by country but is in the range of $7 for the Saudis and up to $49 for Canada according to the WSJ. The U.S. is in at a low of $39 (for the Permian Basin) to over $60. Like the song says, “how low can you go”.