Oil Prices Have Further To Fall Q1 2016

Oil Prices Have Further To Fall Q1 2016

The key to oil hitting bottom is the need for a catalyst to trigger the highly anticipated reversal.  The global oil glut continues to build – most recently with Iran adding 500k barrels/day to an already saturated market.  Iran plans to increase production another 500k barrels/day in 6 months.  I anticipate oil will continue its free-fall until bankruptcies decimate the energy sector.  This will be the catalyst, in my judgement for a fall-off in production and a true basis for oil prices turning up.  At present, producers are pumping their way to the bottom as they struggle to meet overly leveraged debt obligations.  Anecdotal evidence suggests $20/barrel represents maximum pain, ie bankruptcy for many of the drillers.  That said, we have seen a trading cycle in oil over the last three months; three weeks down, one up, three weeks down, one up.  Last week was up.  If the pattern continues oil will fall this week.  Don’t expect a final conclusion to this generational collapse in oil prices for at least another  six-nine months.  Until then, world stock markets should continue to deteriorate, especially in China and its peripheral trading partners.