Crude oil prices are rebounding after getting smashed on Monday on hopes for more stimulus and pending the outcome of some oil export issues in Iraq. On Monday, oil had a hard time finding support as the dollar saw strong buying and a report by Plats that put OPEC production up 300,000 barrels last month to 32.73 million barrels of oil a day, which would be an eight-year high.
Once again bearish news is hitting the crude oil complex and once again the market is hardly reacting to it. Reuters is reporting that some Canadian oil sands production restarted while the API reported yet another new all-time record high level of total combined inventories of crude oil and refined products.
Crude oil prices rebounded yesterday as the global risk to supply is risng at a time when global production may start falling. Not only are markets trying to assess the long term effect from the Alberta Canadian wildfires, but increasing risk to supply in Nigeria is making traders nervous. On top of that, Iran is signaling that it are ready to talk about a production freeze and the Energy Information Administration raised its price forecast for crude while predicting record U.S. gasoline demand.
Crude oil prices are on the rise as traders are starting to see signs of production destruction. What is production destruction? It is the opposite of demand destruction. When prices go too high we see demand destruction or demand fall. When prices go too low, we see cut backs in spending and investment that will call production to fall. We are now seeing the early stages of production destruction of a mammoth scale that will be felt for years to come.