A Volatile, Oversupplied Market
Oil state dictators and despots are desperate for a new dawn in oil prices. Oil-dependent prison states are clinging to recent oil price increases as a sign that all is not lost for their one-trick pony economies.
Can Saudi Arabia afford to let oil prices rise?
US Oil Production Ready to Rebound Upward
Peak Oiler partially recants his dogma
Insightful Comparison to Another False Dawn a Year Ago
WTI prices have increased 47% over the past 20 days from $26.21 in mid-February to $38.50 last week (Figure 1).
Figure 1. NYMEX WTI futures prices & OVX oil-price volatility, 2015-2016. Source: EIA, CBOE, Bloomberg and Labyrinth Consulting Services, Inc. (click image to enlarge).
A year ago, WTI rose 41% in 35 days from $43 to almost $61 per barrel. Like today, analysts then believed that a bottom had been reached. Prices stayed around $60 for 37 days before falling to a new bottom of $38 per barrel in late August. Much lower bottoms would be found after that all the way down to almost $26 per barrel at the beginning of the present rally.
Higher prices were unsustainable a year ago partly because crude oil inventories were more than 100 mmb (million barrels) above the 5-year average (Figure 2). Current inventory levels are 50 mmb higher than during the false rally of 2015 and are they still increasing. __ Art Berman in ZeroHedge
Did you notice the incredible volatility in the graph above? The level of attempted manipulation in oil price matters is out of this world.
Fundamentals Do Not Point to a Sustained Rise in Oil Prices
Prices should fall to around $30 once the empty nature of an OPEC-plus-Russia production freeze is understood. A return to the grim reality of over-supply and the weakness of the world economy could push prices well into the $20s.
… neither Saudi Arabia nor Russia has greatly increased production since the oil-price collapse began in 2014 (Figure 1). A freeze by those countries, therefore, will only ensure that the supply surplus will not get worse because of them. It is, moreover, doubtful that Saudi Arabia or Russia have the spare capacity to increase production much beyond present levels making the proposal of a freeze cynical rather than helpful.
… the U.S. plus Canada are producing ~1.9 mmbpd more than in January 2014 and Iraq’s crude oil production has increased ~1.7 mmbpd. Also, Iran has potential to increase its production by as much as ~1 mmbpd during 2016. Yet, none of these countries have agreed to the production freeze. Iran, in fact, called the idea “ridiculous.”
… The OPEC-plus-Russia production freeze is a cynical joke designed to increase their short-term revenues without doing anything about production levels. An output cut would make a difference but a freeze on current Saudi and Russian production levels means nothing. It apparently made some investors feel better but it didn’t do anything for me. Iran got this one right by calling it ridiculous.
__ Art Berman on Oil Price
Take all predictions with a grain of salt. But stay focused on the fundamentals.
Oil price rally running out of steam
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Q: Have we seen the bottom for oil prices?
A: I think $26 is the bottom, but there’s a chance that oil could dip back down. It depends on this recent freeze announcement by Saudi Arabia, Russia, Venezuela and Qatar. They’re meeting in Doha in mid-April.
Meeting in Doha, but the underlying meaning is “ha-ha!” As Berman said, their kabuki theatre efforts so far have been a joke, and will likely continue to be so.
Iran, Venezuela, and Russia Need Oil Prices Above $100 bbl to Breakeven — Saudi Arabia Can Survive at Much Lower Prices
[caption id="attachment_7407" align="aligncenter" width="640"] 2015 Fiscal Breakeven Oil Price by Nation
Oil Prices Suppressed by Both Ample Supplies and Poor Demand
Short term price swings reflect artificial market volatility, which has been particularly high recently. Wishful thinking for higher oil prices is quite strong in the corrupt dictatorial oil states. Petro-states of the Persian Gulf, Africa, Latin America, and Eurasia are desperate for higher prices, but cannot afford to stop production and allow demand to catch up to supply.
With world leaders such as Obama, Hollande, Merkel, etc. a strong global economic rebound is most unlikely, and so much for renewed demand for ever larger quantities of oil. If “Benghazi” Clinton is elected US President, the global economic outlook should remain dismal.
Chinese credit keeping Russian oil giants from drowning. China will expect some very generous considerations — including outright ownership of much of Siberia — when this Putin crisis is over.
India invests in foreign oil production