Oil ready to collapse despite geopolitics

Not Buying It

Ok I just am not buying all of the hyperbole and enthusiasm that we are seeing in oil. Oh sure, I will buy the breaks in oil for short-term plays, but it appears that the next big move on oil may be down. Oil failed to establish a breakout, which means we are in a choppy downward correction. That is amazing considering the Fed promise to keep interest rates low for an eternity and some stronger than expected Official Chinese manufacturing Purchasing Managers Index in January rose to 50.5 from 50.3 in December and yet another deal to deal with the European crisis. But the truth is from a long-term position aspect, I am not buying it. Even the news that the UK manufacturing index jumped to an eight-month high in January and unexpectedly returned to growth after a quarter of contraction as production jumped, I am not buying it. I think big picture over the next few months we are going to work lower as supply rises and shoulder season is coming.

A lot of times you look at a market and ask “What if?” For example, what if Iran wasn't a delusional regime hell bent on proving it matters by trying to produce a nuclear weapon of mass destruction so they can spread their hatred and show just how tough they are? What if they really cared for their people as opposed to feeding their grandiose visions of grandeur and their overestimation of their military prowess, just where would oil be? Or, what if Europe could get their act together and change the economy that is being held back by generations who feel entitled as opposed to valuing the things that you have?

Well, we can't play with the cards that we don't have, but more and more it is looking like oil is getting ready to collapse under the weight. In fact, after looking at yesterday’s softening data in the US and tumbling consumer confidence, indeed it may be Iran's irrational saber rattling that is the only thing that is holding this market up.

Oh sure, there is the threat that the Fed will print more money giving bears another reason for a quantitative ease off, but in reality, oil supply are generally rising and refineries are closing as we barrel into the season of shoulders or the weakest demand time of the new year. As if gas demand could get any worse, right? The Forward Demand cover for oil is rising again. Oil technically is starting to fail. Still, if Iran goes crazy, beware! The ranges they should continue to be fun.

Natural gas gets crushed as warm weather and more signs that producers cannot or will not cut production in a significant enough way to change this bearish trend. The Wall Street Journal reported that Exxon Mobil Corp., the largest natural-gas producer in the U.S., said it has no intention of curtailing gas production even as analysts predict prices for the fuel could remain at a historically low level through next year. The Wall Street Journal says that Exxon, which reported a 1.6% rise in fourth-quarter profit Tuesday, said it has no plans to cut back on the number of drilling rigs active in North America. Its fourth-quarter U.S. gas production was up 3.5%, while its gas production globally was down 6.6%.

Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at pflynn@pfgbest.com.

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.


Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.

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