Draining The Swamp

OPEC is talking about a further cut in oil production that could drain the swamp of oversupply. If OPEC is correct, they have already cut output by around 1.5 million barrels a day and will soon hit or exceed their targeted cut of 1.8 million barrels a day and will start to reduce the global oil supply quite quickly. Russia is also ahead of schedule with their cuts and with demand growth expected to rise by at least 1.6 million barrels a day according to the International Energy Agency, the market may be in a daily demand versus supply deficit already.

While the record long oil bullish position for hedge funds perhaps wavered on the leap in U.S. oil rig counts, the truth is shale will not be able to fill that void anytime soon. Oil prices seemed a little shaky even as commodity hedge funds increased their bullish positions by 14%. But the lag time in U.S. shale output and the fact that shale output leveled off last week was not enough to overcome worries of the big jump in oil rig counts. The match is clear.

Libya s is looking for cash because they need more investment in infrastructure before they can really raise output enough to shake up the OPEC agreement. The Financial Times (FT) reported that Mustafa Sanalla, Chairman of Libya’s National Oil Corporation, is calling on Libya’s Central Bank to free up some cash so they can raise their oil production to 1.2 million barrels of oil a day by the end of the year. But even if they can produce 1.2 million barrels a day by the end of the year, it is unclear that they could export that much. According to the FT, Libya’s output before the overthrow of Gaddafi was 1.6 million barrels a day. An increased to 1.2 mb would still have Libya cutting back by 400,000 barrels a day from when the OPEC price war was going. Plus, with political divisions and threats from terrorists looming large, it will be a monumental task to hit that target even if OPEC gets the cash.

Natural gas is making a bit of a comeback as weather reports are turning back to bullish. So much for the January thaw. Some forecasters are predicting a return to winter.Joe Bastardi of Weather Bell is talking about a colder weather than others are predicting.