The oil markets were down sharply this morning on increasing cynicism that, essentially, global supply will not be driven down sufficiently by either OPEC or "non-cartel" producer production caps, or the summer driving season in the U.S. being upon us (despite the weather here in Boston, technically yes, its summer driving season).
It would seem that the prior rally was a knee jerk reaction to what basically amounted to a baseless hope that somehow OPEC and other producers would be setting limits that actually addressed the ongoing supply glut, and therefore the lackluster pricing. It was unlikely that would be the case, given that the prior meetings we have seen, despite the hoopla, have also failed to address supply in a meaningful way.
Despite promising to address the fundamentals involved, we've actually seen some ramp up in production on the part of Libya, Nigeria and Iran - none of which had any sort of ceiling placed on them at the recent gathering.
We often talk about other countries production as being an unpredictable factor in global pricing & supply, however, it's worth noting that U.S. production has ramped back up substantially as well. Current production is around 9.3 million barrels a day (up over 6% from this time last year) and on the rise.Given this, it's not likely we will see OPEC seriously curb their levels, particularly the Saudi's, as the concern over U.S. encroachment on their market share has been inarguably a major driving factor in the current glut and its failure to resolve. Saudi Arabia has been beyond clear that they are prepared to hunker down and withstand whatever price declines are necessary for market share retention, particularly as concerns the U.S. At this point, it's pretty clear they are not bluffing about that.
Anyhow - Today, unlike last Thursday's wild plunge,has pared losses as the day goes on, while investors factor in the near term projections on U.S. supply reports (due out tommorow, thanks to the holiday) versus the overall global supply picture.
Platts is projecting a draw down of 3.2 million barrels of crude on tommorow's reports, which would be the 8th week in a row, and definitely helped to stem the bleeding today on the NYMEX by close.
At the close we ended out with Crude at $48.32/bbl, July ULSD at 1.5179 (-.0356) and July Gas at 1.5965 (-0278).