Oil Prices - Feb 9

[dan_s]

This is why oil prices are down today. READ IT CAREFULLY: https://www.iea.org/oilmarketreport/omrpublic/

As I have posted here many times, oil demand is seasonal and the first quarter is ALWAYS the low point for demand each year. You can see this yourself if you go to the link above.

My Take;

1. The IEA gets U.S. production data from our Dept. of Energy ("EIA"). I believe EIA has been overstating U.S. production for several months now and will be forced to correct their errors. I believe Non-OPEC production is going to fall further than what IEA is predicting. Go here and you will see why I believe this: https://rigdata.com/rigdata-insights/bl ... -you-trust

2. I believe Q1 demand may be revised upward. Heating oil demand in the U.S. normally spikes in December, but this year's warm start to winter pushed it into January. A cold back half of February should also help heating oil demand.

3. IEA is assuming much softer demand this year from China. Hard to tell on this one, but increasing demand from India should offset softer demand growth in China.

4. Iran is another big unknown. Their exports may ramp up fast since the oil they were smuggling out of Iraq is now counted as theirs and some of the oil they had in storage can now be sold. Much of what Iran has in storage is heavy, sour crap that no one wants and it definitely does not compete with Brent.

5. OPEC: Unless these countries have a death wish, they will soon agree on some kind of plan to reduce exports. Even a small cut in production will shore up oil prices.

6. Note in the IEA demand chart (at the link above) that demand for refined products will increase by 1.5 million bbls per day from Q2 to Q3. For several reasons, global demand ALWAYS spikes in Q3. When this happens, combined with falling non-OPEC productions, the global oil market will be back in balance sometime in late 2016.

7. The notion that today's high crude oil inventories have to be worked off before oil prices go back up is false. The market is forward looking, as soon as traders see demand exceeding supply the price of oil will go back up.

I DO NOT BELIEVE WE WILL SEE CRUDE OIL BACK OVER $100/BBL ANYTIME SOON. However, more than half of the reductions we've seen in drilling and completion costs should "stick", so the upstream companies will generate good profits if oil just gets back to $60/bbl.

[dan_s]

Comments from CME oil analyst: http://finance.yahoo.com/news/oil-bears ... 45800.html#

[mkarpoff]

I was a bit surprised to see that you expect a more or less orderly increase in oil prices qtr by qtr. It seems to me that your ongoing messages implied that some important event might, instead, trigger a big jump; opec cut back, disruptions of Iraq or Libya oil fields, drop in the dollar, speculator sentiment turnaround, etc. I doubt that you have changed your analysis, so have I been misinterpreting your comments?

[dan_s]

I just showed what I am using in the forecast models. A significant event can cause a spike, but the timing is unknown.