Analyzing Oil Is Crazy Making

Tracking market opinion can make you crazy. Analysts are all over the board on any given day. Take the hot topic of our time – oil – for example. Pat Flynn (yes that Pat Flynn) is a new contributor to TraderPlanet and he has an interesting take on how oil got here and where it is going. Check out Oil-Dollar Breakdown, Higher Prices To Come?

His thorough look at oil and the correlation to the US dollar does give one a reason to pause, yet, one also has to wonder if oil has not turned into something truly unpredictable, given the current hot wars in the Middle East, the shift from oil to renewables and other clean energies, and the demand climb in general that seems to be slowing down, if not receding.

For example, just two days ago, when the Saudis decided to up the ante in Yemen with airstrikes, the consensus analyst opinion was, “Oh boy, there goes the price of oil – up.”

Oil prices have turned the corner after Saudi Arabia launched airstrikes against Iranian backed Shiite rebels putting about 3.5 million barrels of oil exports at risk.

Well, it did, for a moment, and now it is headed lower again, even as the risk of choking off 3.5 million barrels that flow through the Gulf of Aden to the Suez Canal still exists.

Remember hopes that we would get a deal to lift sanctions on Iran that might unleash 1 million barrels of oil on the global market? Well you can forget about that as well after Europe downplayed that a deal would get done, and it would be hard to cut a deal with Iran when they are helping to wage a war in Yemen, creating instability in the region and threatening to expand their influence, putting a long time U.S. ally at risk in the region.

Interesting take, but is a deal really off the table? Iran has a lot to lose if it does not reach a deal. In fact, one could argue that Iran might collapse if it does not make deal, because, surely, the US will apply more sanctions, given the current mood and makeup of the US Congress. If Iran does not make a deal, it is possible its economy will collapse, leading to another revolution of the people.

The worries about a supply glut may change as the fundamental outlook has changed against a backdrop of plunging oil investment, falling U.S. rig counts and global quantitative easing that should spike demand in the coming months. Now add to that the world’s biggest oil producers borders are under siege by Iranian backed Shite armies it is going to be a very explosive situation.

Yes, it is true, oil investment is lessening (for now) and US Rig counts have dropped quite a bit since the Saudis declared war on US oil producers, but lessening investment in oil means more investment in renewables and other forms of energy, such as natural gas, which will tend to add even more downward pressure on oil prices. As well, the drop in rig counts has not seemed to change the numbers in a way that makes any difference. Oil is still piling up across the US.

Oh, and don’t forget, soon enough the US Congress will take up the issue of the ban on US oil exports, if for no other reason than to protect the US oil industry.

As you can see, the analytical take on oil is crazy-making, as no one truly knows what the heck is going to happen in the Middle east, and that is a big concern, and it has big potential for driving oil prices up; but, then again, we do know what is happening on both the supply and demand side, which suggests the downward pressure on oil prices will remain in place for the future.

As to the market today, well, it is still struggling with uncertainty. Given, that, the VIX is down, and technology is up, which is to say money is still flowing, albeit cautiously.