Oil’s bullish case hurt by supplies, taper fears

Oil is tapering down

Oil (NYMEX:CLZ13) got hit hard as the supply side is looking overwhelming. It did not help the bullish case when some Fed officials tried to put the fear of taper into the market as early as December. Add to that a disappointing communiqué from the Chinese’s economic summit that was supposed to issue in a new era of Chinese economic reform fell short. Chinese’s leaders were trying to sell this as the biggest reform since 1978 calling it the “Third Plenum” failed to impress the markets. Copper took it hard and Chinese stocks fell, and oil, at least in terms of WTI, will be forced to focus on the supply side of the market. Still some think that China may have more up their sleeve, but so far they seem to be as good at forward guidance as our Federal Reserve.

As far as supply goes, it did not hurt that the International Energy Agency sped up the time frame of when the U.S. will be the world’s largest producer by 2015. The IEA said “The United States moves steadily toward meeting all of its energy needs from domestic resources by 2035,” the Paris- based adviser to 28 energy-consuming nations said today. “But this does not mean that the world is on the cusp of a new era of oil abundance. Light, tight oil shakes the next 10 years, but leaves the longer term unstirred.”

I discussed this with Andrew O’ Day of MarketWatch

The Investor’s Business Daily wrote:

The U.S. will overtake Saudi Arabia as the world's top oil producer even sooner than expected, with peak energy independence in two decades, the International Energy Agency predicted Tuesday. But America's lead won't last for long, the IEA warned. America will become the global leader in oil output in 2015, the agency said in a report, two years earlier than it estimated in 2012. U.S. light tight oil and Brazilian deepwater oil production will ramp up until the mid-2020s. But the agency sees U.S. production dropping off then, with low-cost Middle East oil regaining the top spot in output. "The Middle East is critical to the longer-term oil outlook," the IEA said in a statement. IEA Chief Economist Fatih Birol told Reuters: "Giving the wrong signal to Middle East producers may well delay investment. If we want Middle East oil in 2020, the investments need to be made by now."

'Historic Turnaround'

Not all analysts agree that the Mideast will continue to dominate oil production.  "This is a historic, global turning point in the market and the IEA is just realizing how important it is," said Phil Flynn, a senior market analyst at Price Group.

The Organization of the Petroleum Exporting Countries had previously downplayed shale oil possibilities, but in a report last week the cartel raised its 2013 outlook for non-OPEC oil supply. Earlier this year, the Energy Information Administration estimated that the U.S. would become the world's top producer of petroleum and natural gas in 2013, surpassing both Russia and Saudi Arabia. The U.S. will reach maximum energy independence in about 20 years, IEA said.

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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