Well ‘a bless my soul what's a wrong with oil? It's itchin' like a man with a festering boil. The trading is actin' wild as a bug. It’s confused, it’s all shook up! Mixed signals is making for crazy volatility as opinions on the future of oil are as diametrically opposed as Bernie Sanders and Ted Cruz.
Traders are looking at the barrel but is it have empty or half fill. The bears are hanging on recent reports by the International Energy Agency (IEA) that the market will be oversupplied going into next year after it lowered its demand forecast for oil demand growth for next year by about 200,000 barrels a day from their last report. They are citing a slowdown in China with recent data showing weak imports and falling inflation.
Yet the bulls are focused on “production destruction" with billions of dollars of capital spending cuts erasing billions of barrels of future production. The Commerzbank (DE:CBKG) pointed out to Dow Jones for example, that oil oversupply could diminish at a steeper rate than previously anticipated, pointing to the EIA's forecast that US shale-oil production will drop 93K barrels/day to 5.12M in November. The bank says that would be the "most-pronounced monthly fall since the data series began in 2007." It also points to recent research from Norway's Rystad Energy which says that due to underinvestment in aging fields globally, output could fall up to 1.5M barrels/day from those assets next year. OPEC agrees saying that U.S. oil output will decline in 2016 for the first time in eight years as producers cut output.
Oil bulls are also citing increasing geo-political risk coming from Saudi Arabia and the proxy war developing in Syria between U.S. and Russian interests.
We favor the bullish case and history does as well. Whenever in history we have cut back because of crashing prices we have always cut too far. That usually leads to a rebound.
Today oil awaits data from the American Petroleum Institute. Some traders are looking for the report to be bearish because of a potential build in Cushing, Oklahoma. Last week's data from the API and the Energy Information Administration was conflicted so be prepared for an a potential surprise this week.
Natural gas is getting some slight support in the Northeast and Midwest. Will we see our first snowfall of the year? Really? What about El Nino?