In a form of rebuttal against the 4 points that Highrider posted claiming were valid reasons for oil to head to Goldman Sacks Ultra bearish oil forecast, the following will show to the counter why oil is set to move higher over the coming year.

I want to also let everyone know that these are only known fundamental facts and carry no biased agenda.  Also remember that the fundmanetals for oil don't necessarly reflect micro risk that the equity could face.

- 1. Stockpiles keep rising - There was a small rise but it was not to the extent we have seen prior.  Actually if you look closely, Saudi Arabia produced less oil in November than in prior months.  A slight inventory build in Cushing Okalahoma for one week is not going to send oil a leg down.

We have the drop in North American rig counts, continued growth in demand, and removal of the oil export ban will cause the inventory to deplete at a much faster rate.  Decline curve of a frac well is 90% greater than conventional and requires extensive and costly continued effort to replace production.  With costs not feasible for investment this production is going to diminish quickly.  57% of US production is done by fracking.  We have gone from 1,900 rigs to around 500 active oil rigs.  With over300% decline in rig activity you can kiss the shale production growth goodbye.  Production will drop upto 1 million barrels per every 6 months that we don't continue to replace lost production.  

The US consumes 8.5 million barrels/day and now is producing less than 9.4 million barrels.  Add the chance that NA crude gets exported and we have all the workings for stability in current oil prices with a good chance of moving higher over the next 6 months.  This doesn't even include the supply and demand restablization that will happen for Brent north sea crude or the Arab basket of crudes.

Remember the market is efficient and it will correct supply and demand metrics that are out of balance.  We are well on our way to a world rebalance and increased demand.  The elephant in the room is going to be China and India's rise to prominance and they have hungry appetites for fossil fuels.

- 2. Production is not falling enough - It takes time to fall off but it is already falling off.  A slight rise in inventories for one week doesn't signify perpetual production.  Remember that oil production rates decline as drilling ceases to replace lost production.  As already noted drilling activity in NA alone has fallen almost 400%.  Whether a decline of up to 1 million barrels is considered "falling enough" that is up to each ones interpretation.  I think it is positive for oil and we will see large declines soon in inventories.  

We also had refineries down for maintenance and have only recently started processing crude inventories.  With cheaper fuel at the pump, strong US economic growth, and now export possibilities, Oil will have to move higher to outpace demand.

Goldman says it will take until the final quarter of 2016 to rebalance supply and demand.  I think this is an older statement probably taken out of context and which will proven innacurate.  There are many smart people in the oil industry who know OPEC is flat out and the production is unsustainable.  Halfway through next year we will see who is correct but you can't run 747's, 18 wheelers, and military on solar power. lol

- 3. Fed rates rise will hit demand - Null and void.  What did the Fed hike that everyone has been anticipating for the last several years really done to oil prices?  Nothing, future contracts shrugged it off as non event.  I think it is positive for commodities in general to get that largely symbolic event out of the way.  Now we can get back to fundamentals and not politics.  Below are a few points why a strengthened US dollar are good for Oil which trades on the green back.

With the US economy on solid ground signified by the need for rate hike, the demand for oil will only increase and all this is going to be excellent for oil in 2016 and beyond.  Our oil will likely move higher as any jitters from a rate hike will likely cause money to flow out of equities and into commodities.

I fail to see how the point of overseas buyers being turned away by rate hikes.  First thing, the international market for WTI is non existent due to Oil Export ban. Also were talking 25 basis points which would hardly cull off international demand for exports.  Oil is priced in US dollars so any real fluctuations in the currency will be mitigated as oil will follow suit.  Take the fact that our loonie is trading at a discount to US dollar and it insulates us quite well, much the same as Russian Ruble decline of 50% which has softened any blow from lower oil.

Climate change - again, you tell me how they are going to run Hum Vee's and Apache choppers on solar panels and you got a point.  I'd like to say everyone is so concerned about climate change and it is a valid concern.  However this is many years down the road and the technology just isn't there.  You add to the fact that most alternative investment is now unfeasible with cheaper crude, guess where demand is going to head?  Just look at China for the answer - buying more crude than ever before.  You see the world has an oil addiction in case we all forgot.  Why do you think the middle east is at war? Surely they aren't there for the view.

- 4. Budget deal is bad news for Brent - Big deal as it's good news for WTI.  If were talking WTI where Baytex is concerned then it's good news.  We will move up as the spread tightens and Brent may pressure lower.  I don't have any materialy impacting Brent North Sea investments so not a worry.  Also this is not a game changer.  Brent, WTI, Canadian Select, and all other crudes will move higher no matter what just on the law of supply and demand.  Don't forget North Sea drilling is dead also and supply will continue to fall.

Highrider I thank you for your points and I take them all seriously but I have to say they seem biased towards the short side.  You tend to use words that instill fear in to people and downplay good fundamentals while highlighting non essential thesis and spinning fear in to it.  Just be cautious you don't become polarized and overlook the big picture.

Folks oil is long term moving higher so if you are not a trader, focus on balance sheet integrity, long term fundamentals, and put the computer to sleep for 6 months.  Even if you are short term flogged you will be long term vindicated.

Ontario Dave