Oh, to have only taken a great big crude short Thursday afternoon before the long holiday.
Oil prices tanked Monday as overly nervous traders trampled the exits. After the smoke cleared, three primary factors stood to blame.
Greece: Boosted the dollar, which always drags on oil prices.
China: Weak stock market leaves viable concerns for Asian crude demand, near term.
Iran: Wants to dump another million barrels per day on the over-saturated world market once the sanctions are lifted.
So much for OPEC. Does cartel membership mean anything anymore, or can any one of the dozen participants produce, or cut production at will?
Does 30.3 million barrels really mean 31.5? And why again are we welcoming Iran back into the world markets when they can’t be trusted an inch?
Many models indicated a return to the $40s in 2015 before an upleg could resume and it looks like today’s triad was the trigger. Indications are that oil prices could test the recent lows, then settle back into the mid to upper $60s by year’s end. However, that was before the Greek vote, and far more important, the Chinese stock market swoon.
The world’s second largest economy is experiencing a market free-fall akin to ours in 1929, and is certain to have ripple affects across the globe. It already did in the commodity trading pits today. Swift releasing of buying margin on printed money (that will certainly fix the problem) and propping up shares will only compound nervousness and could make the eventual outcome even more severe.
Meanwhile, Secretary John Kerry continues closed-lip meetings in Vienna to free Iran from their global sandbox, and once they can come out to play again, they want to bring over 1 million barrels of oil with them. The world does not need more Iranian oil, but obviously President Obama and Secretary Kerry could care less. All they want is Iran to be free to pursue a nuclear program again. Go figure.
Once again, we are stepping away from any kind of fundamental norm related to the world’s oil prices, but that’s the way oil has always traded. Perhaps the prior models will hold, perhaps not. Today’s picture is too unexpected to predict at this point.
The biggest concern with this drop is how it will affect producers who are already sliced to razor-thin margins. The $10 per barrel that was shaved off prices this time could hurt, and painfully so. If prices slide and stay down, this could lead to the flush-out that many analysts were saying must happen before we resume a substantial up-turn.
Written by: Chris Faulkner, CEO of Breitling Energy Corporation and author of the recent book, “The Fracking Truth.” He is also the producer of the documentary, “Breaking Free: The Shale Rock Revolution.”