There are arguments for higher oil prices by November. There are also arguments that commercial real estate in oil-heavy states will begin to recover, near-term, as well, like Houston.
However, as bullish as I am on the future of commercial real estate, I’m not confident about the oil price recovery. Quite the opposite… I believe the oil rally will stall shortly and crash back to $43 a barrel.
OPEC has agreed to lower production next month with cuts of between 200,000 and 700,000 barrels. The Saudis are leading the charge, promising to drop to 400,000 barrels a day, as the country tries to recover from a $100 billion budget deficit.
As a result, oil prices rallied from $43 to $50.
I don’t expect that to last much longer, and neither should you. I don’t even expect OPEC to agree to cut anything in November.
One, OPEC still has to flesh out the details on who will slash what and by how much. We’re well aware that the Saudis could reduce their output by 400,00 barrels a dayIt remains to be seen what Libya, Iran and Nigeria will do.
Already, things have gone awry.
The IEA just noted that OPEC production just hit an all-time high.
Instead of curbing anything, OPEC produced 33.39 million barrels in September – an increase of 220,000 barrels a day.
Iraq increased its oil production to 105,000 barrels a day, for a total 4.46 million barrels.
Nigeria increased by 95,000, adding to its stockpile of 1.52 million barrels. Libya increased by 93,000 to 363,000 barrels of oil in total.
Meanwhile, one of Russia’s most influential energy giants, Rosneft, has said it would not cap oil production as part of a deal with OPEC.
Such indecision could derail the oil rally… and any hopes that oil-rich U.S. states could begin to see a real estate recovery. With time, though, it will recover.