Crude oil prices hit 2016 highs on Tuesday on the back of a rally in the gasoline market and after an industry group reported a surprise draw in U.S. crude stockpiles.Analysts seem always to be taken entirely by surprise.
Are we witnessing The Collapse of the Old Oil Order?
Sunday, April 17th was the designated moment. The world's leading oil producers were expected to bring fresh discipline to the chaotic petroleum market and spark a return to high prices. Meeting in Doha, the glittering capital of petroleum-rich Qatar, the oil ministers of the Organization of the Petroleum Exporting Countries (OPEC), along with such key non-OPEC producers as Russia and Mexico, were scheduled to ratify a draft agreement obliging them to freeze their oil output at current levels. In anticipation of such a deal, oil prices had begun to creep inexorably upward, from $30 per barrel in mid-January to $43 on the eve of the gathering. But far from restoring the old oil order, the meeting ended in discord, driving prices down again and revealing deep cracks in the ranks of global energy producers.Methinks the writer has missed the boat. Saudi Arabia definitely wanted (and still wants) oil prices to rise. The Saudis make a very good profit at $70 per barrel, which happens to be the price point where American fracking becomes marginally profitable. So in the Saudis' mind, seventy bucks is an optimum price: it funds their programs and lifestyles and is not high enough to bring massive fracking operations back into the market.
It is hard to overstate the significance of the Doha debacle. At the very least, it will perpetuate the low oil prices that have plagued the industry for the past two years, forcing smaller firms into bankruptcy and erasing hundreds of billions of dollars of investments in new production capacity. It may also have obliterated any future prospects for cooperation between OPEC and non-OPEC producers in regulating the market. Most of all, however, it demonstrated that the petroleum-fueled world we've known these last decades -- with oil demand always thrusting ahead of supply, ensuring steady profits for all major producers -- is no more. Replacing it is an anemic, possibly even declining, demand for oil that is likely to force suppliers to fight one another for ever-diminishing market shares.
Besides, if Doha was the "debacle" the writer says, then why did spot-market oil hit its year high today? Let's take a look at oil prices since the April 17 (a Sunday) "debacle," using as a proxy the United States Oil Fund, which rises or falls in a 1:1 direct ratio with spot prices. That is, if spt oil rises two percent, USO's share price rises two percent. Here is USO's chart starting April 18, the day after Doha's "debacle."
So if you had bought USO at opening on April 18 (disclosure: I am not invested in this fund and never have been) at $9.985, you could sell today, 11 days later, for $11.39, a 14 percent profit! Some debacle!
Here is USO's chart for the last three months.
Note the rise since the beginning of April. The Doha conference came and went and pretty much no one noticed. After all, no one in the oil biz expected Doha to do anything. The pretty much shrugged it off before it was held and after it adjourned.
I covered why Iran's promise to pump at full capacity means nothing much because they can pump all they want but they can't ship it anywhere.