Is $60 Oil the New 40?

by Deon Daugherty, Senior Editor

Although the dramatic dip in oil prices is still a fresh enough wound that many in the oil patch continue to suffer, industry analysts are weighing whether a new normal may be setting in.

Since the beginning of May, U.S. oil prices have hovered above $59 per barrel – a far cry from the champagne days of $100 oil.

But, the $60 oil that has characterized this May could be a workable price.

To give credit where credit is due, it was Ethan Bellamy, senior research analyst with Robert W. Baird, who posited in a recent note to investors that $60 oil is, indeed, like being 40 years old.

The price threshold has had an invigorating effect on suppliers, such as Emerge Energy Services, Bellamy said. Similarly, a 40th birthday can incent activity.

“At 40, you’re old enough to know something and still young enough to do something about it – a lot like oil producers who, at $60, have a second chance at life,” he said.

In Emerge’s case, board Chairman Ted Beneski took a “best of times, worst of times” approach in the first quarter 2015 conference call with analysts, saying that 1Q was “simultaneously our best first quarter ever and [a] reflection of the difficult market in which we and other frack sand and service companies find ourselves.”

But, the worst of oil prices is likely behind us, said James West, senior managing director and partner at Evercore ISI, because production is finally leveling out with demand.

“We think [prices] will stay here or higher for the next several months,” he said.

As West explained, the bottoming of oil prices is generally accompanied by volatility and conflicting views. But it comes down to fundamentals.

“We believe production in the U.S. will rollover. It was down 200,000 barrels [May 22], and we think that will continue as we go toward the second half of the year,” West said. “We expect to see production at the end of the year where it started and we expect there may be some slippage. With demand up 1.3 million barrels, that will wipe out perceived oversupply and drive oil prices higher.”

As such, Evercore is forecasting Brent oil at $75 per barrel, and WTI close to $70 per barrel.

It’s up to you whether $75 oil is the new 30 or the new 50.

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