Crude oil falls on supply issues

January 6, 2016 10:54 AM

Quote of the Day

Find patience or it will never find you.

Mike Dolan

Although the tension between Saudi Arabia and Iran is still evolving the oil market has completely discounted the event. Oil prices are now trading below last week’s closing levels with the market once again solidly focused on the global supply and demand balances. Based on the way the oil complex is trading the market is not expecting a supply disruption anytime soon.

Oil participants are basically ignoring most of the comments coming from the region even those that could be interpreted as somewhat constructive. For example Reuters is reporting that Iran said it does not want to flood the oil market once sanctions are released. On the surface that sounds constructive but the comment did not come with any detailed explanation as to what their selling program will actually be once they have the ability to increase production.

In my view I expect Iran will simply sell any oil it can to whoever is willing to buy it at the price they are offering it at. With Iran’s oil exports constrained for years and with the current conflict evolving with Saudi Arabia it is hard to believe Iran will hold back oil while Saudi Arabia and the other countries that are aligned with Saudi Arabia are keeping the spigots wide open.

Cushing crude oil inventories have been consistently building for the last several months with another build expected to be reported in today’s EIA inventory report. Cushing stocks have been at record high levels since last week’s EIA report and yet another new record high will be set in today’s EIA fundamental snapshot. In the past very high inventory levels in Cushing would send the Brent/WTI spread surging higher with Brent trading at extremely high premiums over WTI.

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