Happy days are here again: The outpouring of joy at seeing gas prices marginally lower coming into Thanksgiving this year has the oil watchers all aglow – but I am less than convinced. The market is painting for me a far different story and we need to see the signs correctly to position our energy portfolios.
The dropping price of crude oil from the highs we saw during the late summer has most oil observers and the oil pundits excited – and the ideas behind that dropping price are universally repeated. We have an increasing supply profile from the newly developing plays in the Bakken, Eagle Ford and Permian shales. We have a deep supply surplus that continues to pour oil into the financial nexus at Cushing, Oklahoma, causing 6 straight weeks of stockpile builds. We have diplomacy breaking out in Iran, where the talks continue and where most observers see some sort of agreement coming in the next few weeks. That would open the floodgates on Iranian barrels, including 100m barrels of stored product and another 1.2m barrels a day of production potential that would immediately be unchained.
Holy croakers, Batman – there’s a perfect storm of lower prices for the long term brewing here, isn’t there?
Not so fast. The market is not being so quick to believe this long-term trend is coming, and neither do I.
Yes, there is undoubtedly a physical logjam of domestic crude…