The Energy ReportPhil Flynn
The Energy Report for 08/28/2015
Oil ultra bears got hit with a reality check after oil posted its biggest one day snap back since the crazed buying days at the beginning of the frenzy buying of 2008. While there is no doubt that the bear case of ever rising supply is a compelling one, especially if you put it in the context of a slowing global economy. Yet, it looks a lot less compelling if the slowdown talk is being overstated.
The complex has yet to feell the full impact of capital spending cuts and project cancellations that will provide a tighter market of oil in the future when the global economy comes back. Already this year global oil demand growth is the strongest we have seen in 5 years and if we see that surge in the last half of the year we could see the market tightening much quicker than anticipated.
The market has also been pricing in an imminent return of Iranian oil whose oil minister is claiming that production can raise their oil output to 500,000 barrels a day right away and by a million barrels a day shortly thereafter. That is despite the fact that Bloomberg News reported that Iranian oil investment has shrunk to almost nothing and has set aside almost nothing for oil investments this year because of the drop in prices.
Money put into the industry dropped from about $40 billion for 2011 and 2012 combined to $6 billion last year, Iran's Oil Minister Bijan Namdar Zanganeh said Tuesday, according to the ministry's news website Shana. Brent crude prices slumped below $45 a barrel on Aug. 24 for the first time since 2009.
Iran's Oil Minister Bijan Namdar Zanganeh believes that Saudi Arabia needs to stand aside and adjust their output so Iran can regains its market share. Mr. Bijan Namdar Zanganeh went as far as making a veiled threat by saying that adding, "If our exports double and the price drops in half, we don't have a problem because we're accustomed to living and resistance with low prices, and it is others who should be worried."
Venezuela is worried and they should be as the drop in oil prices has destroyed their economy, not to mention the dust heap of the late Hugo Chavez's so called socialist revolution that took Latin America's strongest economy into what can now arguably is the worst. The Wall Street Journal today is reporting that "Hard-hit Venezuela has been contacting other OPEC members to push for an emergency meeting in coordination with Russia to come up with a strategy to stop the current oil price rout, people familiar with the matter said.
According to these people, Venezuela has been in touch with some members of the Organization of the Petroleum Exporting Countries, including Qatar's oil minister and president of the OPEC conference, Mohammed al-Sada, to try again to find common ground to defend crude prices. The Journal also says that OPEC officials from the cartel's power center—Persian Gulf countries such as Saudi Arabia, Kuwait and the United Arab Emirates—say privately that having an emergency meeting is pointless especially when producers outside the group like Russia aren't willing to cut."
Tropical Storm ERIKA, at last glance, looks like she will spare the Gulf Of Mexico. So right now it looks like the storm will just hamper shipping into the Gulf. This should slow imports in a couple of weeks.
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September 3rd, 2015
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