Oil markets have rallied rather substantially over the last several sessions, but here at The Trader Guy, we are not so bullish on the commodity as there are a lot of things to consider. Yes, OPEC did have a slight agreement of a production cut, but quite frankly 750,000 barrels a day is a lot less than the 2 million barrels a day that currently oversupply the market. In other words, it is perhaps a bit premature for the market to start buying, but knee-jerk reactions are fairly common.
There’s also the argument of hurricane Matthew threatening storage in places like the Bahamas and the Gulf of Mexico. The storm doesn’t seem to be a significant threat to US supplies, so if there’s going to be any type of issue, it will be in the Bahamas. Quite frankly, that’s not enough to move the markets longer term. With this being the case, we are actually looking for selling opportunities, which of course we don’t have at the moment.
Many analysts around the world suggest that the EIA data should show an increase of 2 million barrels in US oil storage, which of course is a complete turnaround to the less couple of weeks. It’s also expected that Saudi Arabia may move soon to lower its selling price for oil to defend the market share of the kingdom. Keep in mind that the OPEC members have been producing record high amounts of crude during the month of September, at roughly 32.5 million barrels per day.
Ultimately, one of the biggest problems that OPEC will have is that not only does the United States produces quite a bit more oil than previously, but also there is a serious lack of demand around the world. Economies simply are not growing strong enough in order to soak up excess supply. We are simply sitting on the sidelines and waiting for signs of exhaustion to start selling yet again. Patience will be what’s needed, but that’s nothing new – its the nature of trading. To quote the great Jesse Livermore, “We get paid by the market to wait.” We couldn’t agree more.