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Why We Won’t See An Oil Price Rebound Yet

Why We Won’t See An Oil Price Rebound Yet

The front page of The Wall Street Journal on Tuesday, February 10 proclaimed “Oil-Price Rebound Predicted” according to the IEA (International Energy Agency).

Not true.

The February 10 IEA Oil Market Report states that some “market participants are seeing light at the end of the tunnel” based on oil company spending cuts. It goes on to mention that over-supply could become as bad as in 1998 when oil prices plunged to almost $11 per barrel.

That’s some kind of light at the end of the tunnel!

I believe that oil prices will increase strongly before the end of 2015 but there has to be a reason. Budget cuts and falling rig counts may create a feeling that production will fall but markets don’t move far or for long based on feelings.

The first reason for a rebound in oil prices will be a production cut after the June OPEC meeting. That didn’t happen in November because Russia said no. I think Russia will be ready by June.

The second reason will be when North American oil production starts to fall, hopefully around the same time as an OPEC plus Russia production cut. Another reason may be a political event that introduces a fear premium into the price of oil like ISIS in Iraq, Ukraine or something not on the radar yet. That’s how the world is.

 

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