Philosophers have over time pondered the great mysterious questions in the universe, such as "Which came first, the chicken or the egg?" or, "Is Razzle's a candy or a gum?" Well, now market philosophers and crude (NYMEX:CLF15) oil traders are asking the question, "Is the selloff in oil a supply or demand issue? Overnight there is evidence to support both answers.
The International Energy Agency (IEA) piled onto the crude market by lowering global oil demand expectations for 2015 by 230,000 barrels per day. That means that they expect only a 900,000 barrel per day increase and not really indicative of a robust global economy. As far as OPEC is concerned the IEA said that demand for its oil will average 28.9 million barrels per day in 2015, which is less than 1.4 million than OPEC produced last month.
Yet it is also about supply. Because of the U.S. shale revolution and many oil projects coming online outside of OPEC the IEA is predicting that global inventories may rise by a gargantuan 297 million barrels in the first half of next year. That could bring stockpiles to 2.87 billion barrels in OECD countries and it is possible that these countries will have no place to store it.
Yet you would think that we would see signs of demand pick up with the lower prices. So far that has not happened. Data from the U.S. Energy Information Administration was disappointing on the demand side. The IEA is warning that demand won't dent into supply in the short term. In Europe and China we are seeing demand numbers fall short of expectations. If this drop in oil price is a good thing, we are not seeing the benefits yet.
Global markets are not feeling confident either. Stock markets falling and safe haven buying has been the markets mood. The strength in the Dollar will only add to downside oil market pressure.
With The Fed meeting next week it will be interesting to see how they handle the plunging price of oil. So far there has been a chorus of Fed officials telling us what a wonderful thing these falling prices are. The problem is that markets around the globe are not buying into that rosy scenario.
So is it about supply or demand?
Yes global demand is falling but if it was not for rising U.S. oil production OPEC more than likely would have cut production. So in the end the answer is one with no real answer. Now onto the next question, "how many licks does it take to get to the center of a "Tootsie Pop"?
Next big support for WTI is $88.If we can't hold it next stop $85.