SocGen’s Three Scenarios For Oil See Crude Price Between $110 And $200

Tyler Durden
Zero Hedge
March 7, 2011

After Nomura released a report two weeks back predicting oil could rise to $220 if the MENA situation escalates, this morning SocGen’s Michael Wittner has released his own scenario analysis on the possible outcomes of the 2011 revolutions. His three cases see oil within the following escalating thresholds: $110-$125; $125-$150; and $150-$200. We are fairly confident that the worst case, which as expected involves all sorts of bad things happening in Saudi Arabia, is missing an extra zero somewhere. Some key observations from the report (attached below): “The forward curve for Brent, the better indicator of global oil market fundamentals, is currently in backwardation (nearby premium, forward discount) for the next 5 years, reflecting concerns over growing physical tightness in the crude markets. The oil markets are pricing in an extended Libyan shutdown of crude exports (see below). Even on the WTI forward curve, where prices are still under pressure from local mid-continent US market conditions, the contango has eased and now only extends through 2011; from 2012 through 2015, WTI is also in backwardation. As the Libyan crisis has escalated, the latest US CFTC data show that non-commercial net length for NYMEX WTI futures has reached an all time high. This is a key indicator that a new wave of investor flows is now moving strongly into WTI and the oil complex in general. With the widespread unrest in the Middle East and North Africa (MENA) region expected to continue, and the oil markets worried about further supply disruptions, the attractiveness of commodities and oil to investors has been underscored. With oil prices driving heightened concerns over inflation, oil itself is seen as a good hedge against inflation.” In summary, SocGen sees about $15/bbl risk premium built into current prices, which could jump to as much as $110.

Read the article and see the docs.