Why current oil prices are unsustainable
Why current oil prices are unsustainable. Chad Padowitz, from Wingate Asset Management, says energy is one of the two real opportunities in markets right now. We don't believe oil is sustainable at $45-$50 a barrel. We think a sustainable level is around $70 to $80, that is the price you need to get supply to meet current demand. Padowitz points to three factors that influence his thesis 1) Approximately 8% of global supply needs to be replaced each year to sustain current production levels (i.e. not reliant on economic growth) 2) The impacts of the dramatic fall in rigs used to extract oil takes about 6 months to impact supply - the recent peak was only 3 months ago (chart) hence full supply impacts have not yet been felt. 3) Oil has very steep supply and demand curves requiring very large price movements to effect equilibrium. OPEC stepping back from market manipulation has added to the size of these movements. Padowitz says, Don't think that the next upside has to cap out at $70 or $80.