Matt Badiali in Forbes: Oil Is Oversold
It is always an honor to be quoted by Forbes. Last week, I had the pleasure of interviewing with Robert Rapier, the energy sector contributor at Forbes, on the many issues that are present in the oil industry at the moment.
The first week of November, we saw oil prices fall for the 10th consecutive day, which (according to CNBC) marked the longest losing streak for crude oil in 34 years.
In the summer of 2017, the price per barrel of crude oil was still in the mid-$40 range. This summer, it reached the mid-$70s – rising more than 50% in just one year.
It should be no shock that President Trump’s tight oil sanctions in Iran would cause a rise in oil prices. Iran exports more than 2.6 million barrels of crude oil per day and is one of the top 10 crude oil experts in the world. Iran’s crude oil exports accounted for nearly 5% of global crude oil exports in 2017 alone.
But we can thank another policy for the rise in crude inventories – trade war with China.
In 2015, the crude oil export ban was repealed and China’s exports of crude oil from the U.S. rose dramatically. But, China recently announced that in light of the trade war with the U.S., it has suspended crude oil imports from the U.S.
As I explained to Rapier, my research has shown that during the run-up to Iran sanctions, many of the Asian countries cut back on Iranian oil imports. China included. Those countries cut about 900,000 bbl/day of Iranian exports, but the demand for oil doesn’t just go away. The demand was filled by the U.S. and Saudi Arabia.
Crude oil demand has not declined. In fact, in the U.S., it has gone up.
I doubt that Saudi Arabia can keep up with production. It’s only about 130,000 barrels per day below their highest level of production in the last 10 years, and they were only able to maintain it for a couple months before having to scale back.
We are seeing the lowest price for oil for the next 12 to 18 months, where we will then see it raise much higher.
For the full story, read Oil is Oversold.