Oil Fundamentals Could Cause Oil Prices To Fall, Fast.

Oil prices should fall, possibly hard, in coming weeks. That is because fundamentals do not support the present price.

Prices should fall to around $30 once the empty nature of an OPEC-plus-Russia production freeze is understood. A return to the grim reality of over-supply and the weakness of the world economy could push prices well into the $20's.

Instead, Russia and Saudi Arabia have apparently agreed to a production freeze. This is meaningless theater but it helped lift oil prices 37 percent from just more than $26 in mid-February to almost $36 per barrel last week. That is a lot of added revenue for Saudi Arabia and Russia but it will do nothing to balance the over-supplied world oil market.

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DYI Quick Comment:  Those who are wired in to this information went long on oil for a fast Buck, Loonie, Franc, Euro, Pound, Yen etc.  This in my humble opinion, this was their first intent.  Oil will have to hold at this higher level for some time to get the contracts pushed through.  Simple jawboning to make some fast money.

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By contrast, the U.S. plus Canada are producing ~1.9 mmbpd more than in January 2014 and Iraq’s crude oil production has increased ~1.7 mmbpd. Also, Iran has potential to increase its production by as much as ~1 mmbpd during 2016. Yet, none of these countries have agreed to the production freeze. Iran, in fact, called the idea “ridiculous.”

I hope that oil prices increase but cannot find any substantive reason why they should do anything but fall. As market balance reality re-emerges in investor consciousness and the false euphoria of a production freeze recedes, prices should correct to around $30. A little bad economic or political news could send prices much lower.

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DYI comments:  If oil prices go down to the teenager level due to over production plus global recession lump summing into our favorite closed end fund is DYI's first choice. Adams Natural Resource fund symbol PEO.  Oil prices will recover as the world's economy recovers setting up some nice profits in the years ahead.

Keep Your Powder Dry

DYI