Crude treads lightly

Daily Energy Markets Analysis

Crude oil is trading on very important historical support as the market tries to find support at $44 a barrel. For oil to go much below  these price levels and stay there we would have be in a new paradigm, because according to research by Dave Boyce at Dixie-Industrial, it is a level that oil has been in only 3% of the time in the last 10 years.

Perhaps we are in a new world for oil, but I believe that the recent sell-off is overdone and we are closer to bottom than top. The main factor today will be the jobs report and U.S. rig counts.

The argument for this new world by oil bears is the fact that we have this glut of crude. They argue that China is falling apart and we will soon see a flood of oil from Iran. Perhaps we will be in a new world assuming that China demand falls off at some point or if we get a flood of oil from Iran, but there are signs that that is not going to happen. In China there is talk of another massive stimulus package and a leading democrat is saying that he will not vote for President Obama's Iran deal, calling into question the belief that this Iran nuclear deal is already done.

China has already thrown a trillion dollars at its economy so far this year and they are getting ready to spend another trillion dollars. China is offering 300 billion yuan (HK$374 billion) in bonds to pay for "smart infrastructure" projects in a plan to boost growth and of course oil demand. They may triple that in the coming months and whenever China has done this it has been a positive for oil demand.

Don't count those Iranian barrels of oil just yet. The New York Times reports that, "Senator Chuck Schumer, the most influential Jewish voice in Congress, said Thursday night that he would oppose President Obama's deal to limit Iran's nuclear program... Advocates on both sides have strong cases for their point of view that cannot simply be dismissed," Schumer (D-N.Y.)  said in a lengthy statement. "This has made evaluating the agreement a difficult and deliberate endeavor, and after deep study, careful thought and considerable soul-searching, I have decided I must oppose the agreement and will vote yes on a motion of disapproval."

Apparently, according to the President, Senator Schumer must want about war in the Middle East because the President said that there are only two outcomes. His deal or war. Also Senator Schumer must be linked in with the Republican caucus and the hardliners in Iran that shout "death to America" according to the bar that was set by the President in his speech earlier this week. I guess the President is saying that anyone who disagrees with this deal are in line with the terrorists in Iran.   

We have spoken years ago about a new era of low gas prices long before anyone else was doing so and we are enjoying the fruits of that prediction in large part thanks to the U.S. shale producers and the U.S. refining industry. U.S. refiners are producing a record amount of gasoline and they will continue to do so despite the oil price drop. 

About the Author

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor.