Oil Market Still Not Balanced After OPEC Production Cuts

EconMatters's picture

By EconMatters


We discuss the EIA Oil Report data in this video, and it appears that we are going to set another all-time record high for Oil held in storage again this year. In fact at the current pace we are going to blow through that previous record of 510 Million Barrels of Oil stored in private reserve facilities. It appears we are on track to hit 550 million barrels of oil in storage by May of this year.

OPEC Production cuts also appear meaningless, as we are building at the same pace as this time a year ago in the oil markets. What a difference a year makes, as we have more supply than last year, and we are double the price from a year ago. The difference in gasoline demand is simple higher prices mean lower consumption, this is simple economics at work in a country where most consumers are broke paying their damn cell phone and cable bills each month.

Oil should be much lower based upon the current fundamentals, but this never ceases to amaze me how manipulated all markets are for the 15 years I have been involved with them. But the manipulation of the oil market just prolongs the inevitable rebalancing process, nobody has still yet to go out of business in the oil markets. Until this happens the oil markets will never be rebalanced; again pure economics at work.

You cannot artificially prop up a market without major market ramifications down the line to be addressed. Either OPEC Needs to cut further, or Shale Production needs to go down significantly for the oil market to actually rebalance as everyone would like in the business. Unless things change, and an extension of the current OPEC Production Cuts isn`t going to cut it, the oil market will take the next leg down lower at some point over the next 12 months. It is just a matter of time. My guess is that if we haven`t sold off before July, then this will be the start of the next leg down in the oil markets; probably corresponding with a selloff in the overall Markets.

 

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yngso's picture

Yup, the oil market is so fragile, with the glut and laden with debt, that a "black swan event" - or just crumbling under the weight of its own unsustainability - that it may be THE trigger for the mega-worldwide economic conflagration.