The Oil Market Can't Catch a Break
12/08/2014 12:01 am EST
Just when you think the crude oil market may be bottoming says MoneyShow's Jim Jubak, it gets hit by more supply, which drops prices even further.
The oil market can't seem to catch a break. There was pretty decent rally in oil prices coming out of the long Thanksgiving weekend, on the Monday after that, so on December 1 we had a rally in West Texas intermediate and Brent, because we'd been down too far and the US traders had been out of the market, so you had a bounce. However, on December 2, what happened on December 2 is pretty much what has been happening all along the line; every time it looks like oil might put in some kind of stability you get an announcement of more supply, so, on December 2, we had an announcement of an agreement between the Kurdish authorities and the Iraqi government that would allow the Kurds to export about 300,000 barrels a day through a pipeline to Turkey. More supply was dumped onto the market.
The problem is that there doesn't seem to be any way to take supply out of the market. OPEC met and decided that it wasn't going to do anything. It left its quotas the same. The Saudis have said that hey, you know, if everybody else agreed to cut, we might agree to cut. That's really really unlikely. The market went up slightly on that headline from Reuters and then people said, "Well, gee, that's not really, the Saudis have always been willing to cut if everybody else does too, but no one else is going to cut and even if they did, they would cheat and the Saudis don't want to go there, so that's not going to take any supply out."
Every time we look around and we go, "Oh, okay, so maybe oil prices will take some production out of the US," then someone says, "Well, okay, yeah," but we're talking about an extended period below $60 a barrel, below $50 a barrel before we really start to get any reduction and then it's not going to be a reduction in currently supply, it's going to be a slow down on projected growth.
It's hard to see how anything comes out of supply and then you're stuck looking at a question of when you're going to get demand growth in China, Japan, and Europe and that looks, well, iffier every day that December unrolls, so you can understand the oil market is still looking for a bottom.