Publications: Notes at the Margin

Divergence: Whither Crude Prices? (March 19, 2018)


Cash crude prices sank early last week as traders unloaded futures. Prices then recovered. Meanwhile, share prices of the BP Prudhoe Bay Royalty Trust (BPT) rose steadily for the entire week. BPT shares have been on an upward trend for the entire month, while spot oil has fluctuated.


The divergence is striking. We explain it here by pointing to an increase in crude oil stocks, particularly in key US locations, that has created a temporary short-run surplus at a time when the adequacy of supplies in three or four years has become increasingly uncertain. This leads to the possibility of lower prices in 2019 but much higher prices by 2021 or 2022.


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