1) The document analyzes factors that could impact future oil prices over the next 4-6 years based on historical price events in 1986 and 1999. 2) It predicts, based on analysis of price peaks and troughs, that the WTI oil price will reach $59/barrel in 2021 and $90/barrel by 2027 after adjusting for 3% annual inflation. 3) Key factors that could affect future oil prices positively or negatively include the U.S. rig count, storage capacity limits, the size of the fracklog of uncompleted wells, geopolitical events, and actions by OPEC.

1. Oil Creating Double Bottom March 21, 2015
THE OIL PRICE DROP OF 2015 WILL RANK AS AN EPIC EVENT!
Last Tuesday afternoon, April oil price punched through the $43 level and
multiple factors indicate it could fall further before establishing a new but
unknown low. OILMAGEDDON REVISITED…. But by Friday, due to the US Fed
meeting, the oil price recovered to about $46 based mainly on weakness in the US
dollar.
In addition, as shown on the Double Bottom graph below, three resistance levels
are indicated that will be barriers to future price increases. The highest and likely
strongest resistance level is $58. In order to penetrate these resistance levels
and move into plus $60 oil, some significant events must happen in a manner that
creates upward momentum.
Graph 1
The BIG question now is what might happen to the WTI oil prices over the next 4
to 6 years. To answer that question, I propose looking at the 1986 and 1999
events. I believe there is a relationship between these two events that could
provide us with clues regarding our future. As I will discuss later, there are many

2. obvious and hidden factors even a BLACK SWAN event or two that could
significantly affect the future oil prices. But first let’s just look at what the charts
tell us.
The oil price chart for 1984 to 2015 illustrates the relationship between the 1986
and 1999 events and the associated levels of resistance to increasing oil prices
and support to decreases in oil prices. Note that once the oil price penetrates a
level of resistance, the price level can become a support level as illustrated by the
$20 level at the beginning of 2002 (Graph 2).
Graph 2
The 1986 event double bottom lasted about 3 years before the WTI oil price
obtained and frequently tested the $20 resistances level for 9 years. Over this
long period, the price did not even increase by the rate of inflation. In 1999 oil
prices experienced another price event that lasted about 4 years. This event also
experienced a double bottom but in this incident the $20 level acted as a support
level to the price in late 2003.
I would suggest that the 2015 is forming a double bottom for which the final drop
price cannot be predicted easily. The only bright light on the horizon is that the
2015 cycle appears to be compressed relative to the 1986 Event. It appears that
after the double bottom oil prices will return to the $54 level based on Graph 1.

3. An alternate method to determine a future critical price and point in time is to
look at the various oil price peaks and toughs (Graph 3). The declining peaks
starting with the $140 peak in late in 2007 defines the upper limit of oil price with
time. The increasing troughs starting with the 1999 low of $11 passing through
the $20 low in late 2001 establishes the lower go-forward oil price. Assuming
that these converging lines define a price and point in time, WTI oil will be
$59/bbl. (2015 Dollars) in approximately 2021. As shown on Graph 3, after
applying an inflation rate of 3% per year over 6 years, the oil price would be
approximately $90/bbl. Although the line time appears to be long but not
impossible, the WTI oil price of $90 seems reasonable. This upward trend is
illustrated by the price increase from $70 to $105 between middle 2009 and late
2014.
Graph 3
Now, the BIG question is what factors and/or events might affect the North
American WTI oil price in a positive or negative manner.
1. US Rig Count
As of the end of week March 13th
, the US onshore rig count had dropped a
total of 43% from a high of 1876 in November, 2014 to 1077 rigs on March
13th
, 2015. Based on the Brent/WTI and U.S. Rig Count chart below, the
trajectory (green line) projects that the rig count will fall to just above 800

4. sometime during April. Although not as marked as the onshore, the Gulf of
Mexico is now down almost 30% from its 2014 high.
The decrease in rig count is starting to impact production level from the three
main oil basins – Permian, Eagle Ford and Bakken. The chart below sourced
from the March EIA Drilling Productivity Monitor compares March to projected
April oil and gas production for the US unconventional basins. With many
companies now running a “drill but don’t complete” strategy the connection
between rig count (drilling activity) and production is likely to become
somewhat decoupled with the production impact being greater than that
indicated solely by the fall in rig count. If the EIA’s March projections turn out
to be correct, this month may mark the anticipated inflection point for
decreases in U.S. shale output, possibly easing the inventory build seen over
the past several months.

5. That having been said, while near-term production may flatten or decline in
the U.S., in other locations it is still going to take some time before the oil price
fall has a material impact. Canada added a further 100,000 barrels per day this
week from two heavy oil projects, and developments already in progress are
scheduled to add more than 1.5 million barrels per day by late this
decade. Similar momentum can be seen in the Brazil pre-salt projects, and
other major developments projects around the world.
2. US Storage Capacity
U.S. oil inventories reached an 80-year high at 458 million barrels as of 13
March 2015 (up 10 million barrels on prior week) according to the EIA. The
United States may soon run out of spare capacity to store crude, which would
put additional downward pressure on prices. That process would last at least
until the second half of 2015, when U.S. oil production growth is expected to
start abating. At last count, U.S. crude stocks stood at a record 468 million
barrels, the IEA said. "U.S. stocks may soon test storage capacity limits”.
What would the price received for the first barrel of oil production after the
storage capacity is full?
3. North America Fracklog
If oil drillers expect prices to rebound after the biggest drop in six years, some
have come up with an alternative to storing their crude in tanks: They’re
keeping it in the ground. This is accomplished by not completing the well and

6. placing the well on a fracklog (backlog of unfracked wells) for completion
when oil prices increase to an economic level.
As of March 2015, Harold Hamm, CEO of Continental Resources Inc. estimates
that 85% of US wells are not being completed. Anadarko Petroleum plans to
have 440 uncompleted by the end of 2015 and EOG expects to start 2015 with
a fracklog of about 200 wells and plans to build the inventory though the first
half of the year.
Initial production from these wells range from 750 to 1000 barrels per day
therefore the backlog could represent gross production of as much as 3 million
barrels per day, at least at the outset.
The larger the fracklog becomes, the slower the rebound because the backlog
will have to be worked off.
4. Strong US Dollar
A weaker dollar makes dollar-priced crude more expensive for buyers using
their stronger currencies. Therefore the oil price increase during the week of
March 15th
could have been a dollar play.
5. Corporate Discipline Regarding Capital Preservation
Oil and gas corporations are actively preserving capital by cancelled or
deferring projects, salary reductions and staff layoffs. In addition, some public
companies have raised new capital through the sale of new shares.
Black Sawn Events
1. Negative Interest Rates
As of 2014, the world central bank started to go to negative interest rates. To
date, as much as $3.6 trillion of debt in Europe and Japan trades at negative
yields. This is new territory and the impact of this action is probably unknown.
With negative interest rates in Germany, Switzerland, Ireland, Belgium and
Denmark, almost 1.2 trillion euros worth of European government bonds give
negative yields.
In June 2014 the European Central Bank (ECB) began paying -0.1% on deposits
held in its vault, before lowering the rate to -0.2% in September. Denmark and
Switzerland have negative rates, as well. And on February 12th the Swedes
joined the party: the Riksbank cut its benchmark interest rate to -0.1%. Since

7. the ECB introduced negative deposit rates the euro has fallen against the
dollar by nearly 20% creating DEFLATION.
2. OPEC 2015 Production Cut
Later this year it is always possible that OPEC or Saudi Arabia/Russia negotiate
some form of production cut that could increase WTI oil price to $70 to $80 a
barrel. The differential to Brent would be of the order of $10 a barrel.
3. Geopolitical Event
With the continuous military conflict in The Ukraine and the expanding activity
of the Islamic State, the level of geopolitical risk is very unpredictable and very
high!
Currently The Ukraine is working on their second cease-fire in the last couple
of years but the situation could deteriorate and explode into a major conflict
again with numerous economic impacts that could destabilize Europe.
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