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Every punter says oil prices are on the rise: Oil hits $48/bbl -- lowest since September 2016

What the hell?

How could this be, punters, advisors, investment bankers all agreed commodity prices  in general and oil prices in particular are on the rise...its a brave new era for producers and exporters -- finally the world is back and demand is going through the roof, except not so much!

What happened?  Well energy is complicated, the world operates in a balance -- 30 days of physical reserves is about all we've got (seriously) this is a just in time business.  So the long term trend always gets hit by short term variations.

Global production over the past 12 months has risen by somewhat less than 1.5% per annum.  As the world market changes production becomes less energy intensive (maybe), but the reality is that the world is growing more slowly -- America Q4 GDP growth was around 1.9% (annualized) Europe is going nowhere fast (the GDP growth in Germany is overshadowed by the lack of growth in France, Italy, Spain (lets say 27 Euro members generated a total GDP growth of 1.2%).  China grew by 6.8% (apparently -- so things are not all bad there!).

Now all these stats are interesting, but all of them could also be used to explain why oil prices are "exploding"  that's the problem.  There is no good predictor of oil prices except gut instinct, and these are usually wrong.  As an example, looking at US exploration and drill rig count, energy analyst assume that over the next 24 months, the US will add nearly 1 million barrel per day in production. Whereas Mexico will se a cut of nearly 500k/bbl/day.  Again last week the US announced that another major find was made in Alaska --

So take my word for it, oil prices are the biggest unknown, and the reason for price reduction are the same as those that can justify a price increase.

enjoy uncertainty...


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