Six Amazing Charts Show Exactly Why Oil Prices Have Been Plunging
Crude oil is enjoying a rebound today, but that’s after a persistent pounding over the past two weeks that sent crude prices toward a test of the January-February lows. Forget the fancy economic analysis. Look at the charts. They show you exactly why crude has been under pressure. Supply exceeds demand. The price of oil will remain under pressure until demand starts growing faster than supply. So far, prices have not dropped enough to cause producers to cut back on supply.
Data in these charts is the most recent available from the US Department of Energy (through May) for US data and the International Energy Agency (through Q1) for world data.
US Crude Oil Production
World Oil Production
OECD Crude Inventories
US Crude Inventories
OECD Total Petroleum Products Demand
World Total Oil Supply and Demand
Because the international data has such a big lag, the price action itself could turn before the fundamental causes are revealed in the data. But price is set in the futures market, which can remain unhinged from supply-demand fundamentals for long periods. Oil speculators must trade the charts and leave the fundamentals for economists and financial journalists to fulminate over.
As for the price action, look to see what the smart money and dumb money are doing. Producers are still near record short and managed commodity funds are still heavily long and getting crushed. The double bottom may look tempting, but who wants to bet on a bottom here? Apparently not the smart money.
Crude Oil Futures Price
Its hard to imagine oil was ever up to $115 a barrel, whereas today we are hovering around $52/barrel. With today's news about Iran and the foreseeable release of their embargoed oil supplies, we surely will see a massive new influx of oil supply and a further drop in prices. Two additional factors weighing on oil in the near future are China's economic slide, and secondly a more unlikely scenario is whether OPEC will kick in with some supply controls to stabilize oil prices.
With so many factors affecting the price of oil, one factor seems to be the most imminent game changer, that is the nuclear deal with Iran. With Iran seemingly biding for time, the White House is trying to be patient saying that while progress is being made, talks would not likely drag on for "many more weeks." If the agreements reach a successful conclusion and the US sanctions on Iran's oil exports are lifted, we can expect Iran's oil output to double. Currently, Iran is exporting about 1.2 million barrels of oil per day, but that figure could jump to 2.3 million barrels if and when the US sanctions are lifted. If that huge increase in supply happens, we could see a knock-on effect in oil prices. If you were a betting man, would you put a wager on a US/Iran deal? I remain very skeptical.