Reading a lot of headlines for a very long time, it is interesting to see them in a order of a timeline reading in order the same hour ranging from “crude going higher on lower rig counts” and “expectations for $30 crude before year is out”.
You begin to wonder if each of the writers are on the same planet.
Want some reality….
Just look at the facts on the ground, not what trend data or a few limited hand picked facts someone wants to point out.
The world has been in “over production” of crude oil for about a year.
Consumption has went down while production has been up.
Expectations have been wildly pushed and prodded in unrealistic ways.
…
Interesting that the “rig count” can move the price of oil today for if it goes down, it will be at least 6 months before the wells those rigs taken off-line just drilled begin to produce oil to enter the market. So it might only mean lower production in 10 months if it can continue 3-4 months in a row or a higher number of existing wells ‘dry-up’.
Interesting that we gauge overproduction storage by only one place in the U.S. in Cushing, OK while most of the overproduction has been filling every container that can hold it everywhere else including super tankers. Eventually, we will run out of storage and/or have no money to pay for it’s storage and the price will crash rapidly taking many a investor with it. Some of what shut down some North Sea oil shipping is in the fact they could not find a empty tanker. They are using them for storage.
How long will it take to “burn-off” all this oil in known and unknown storage ? We have no real way of tracking how much is in true storage. Just what shows in Cushing.
Yes, there is going to be a re-balancing of power from oil production and extends and complicates more than just oil. Much of U.S. oil leaves the country as “refined products” outside of the export ban, but soon, those Texas refineries will have competition from Saudi Arabia as they build many large new refineries (coming on-line in 2016 – 2018) designed for exporting large amounts of refined products. So what does that do for the price of WTI crude and gas/diesel and heating oil?
Iran has yet to show us what it can produce starting in 2016 and the impact of that new volume has yet to be realized and is more than any offset from waring nations in the Gulf to say the least. Since they have had time to prepare for sanctions being lifted, there could be a flood of oil hitting the market initially. What they can sustain in production is yet to be seen.
While just having producing nations talk about controlling production creates a spike in price today (expectations), nobody is willing to give-up market share so the talks are always fruitless and overproduction continues. But a lot of money is made from those price spikes for a day or two.
From a old-school investors point of view, this is pretty simple regardless of what tech details someone wants to inject….
Until production is near consumption and we burn-off that what is in storage, the price will be lower. Ignore that and you are sitting on a time bomb that is getting bigger as time goes on. Take your lumps now or be destroyed by it in the future. Most likely, it will really cost us many jobs when companies go under water ‘when’ the bomb explodes.
Hiding the oil may have worked for the investment banks to create their own ‘contango’ between spot and futures oil pricing but that was in a near equal supply/demand equation. They had control of the news from a investment point of view. It does not work for long in a widely overproduced market. You just don’t have that kind of storage. The only room for speculation is in the future consumption growth and when we run out of storage space for it.