I don’t buy the “oversupply” argument. It’s not as if all of a sudden there was a huge change in production in September... Everyone has seen the chart of US production growing exponentially for the last three years. Sure some of the “oversupply” has an impact but not to cause a price collapse of over 50%. That just fails basic math.
The other major piece is the ROW falling apart. The U.S. remains strong (relatively) but will we be dragged down with them?
How much of this is short covering?
Seems we might be nearing a bottom as the fundamentals just don’t support a 50% sustained decline. Now the climb back up might be long. But I’m looking at some companies who are off 60-70% and think they might be good deals.
One would have to surmise that the oversupply was the catalyst. Without that first, none of the other stuff happens. But the history of the biz is littered with boom/bust ever since. Spindletop, East Texas, Middle East, and on and on.
One commentator yesterday suggested that market speculation acted to drive the prices far and fast, perhaps lower than the fundamentals warrant.
Such is the nature of markets.
http://finance.yahoo.com/news/why-hard-pick-oils-bottom-034857980.html
Why it’s so hard to pick oil’s bottom
CNBC By Leslie Shaffer
Trying to pick the bottom of oil’s surprise price plunge may be tougher this time around, with analysts turning to non-traditional indicators to make predictions.
“Normally, when you have a collapse in a commodity price, it’s in response to some supply demand shock,” Mark Keenan, a cross-commodity strategist at Societe Generale, told CNBC. “[But] you’ve actually had a change in the supply and demand curve so you can’t really apply traditional shock dynamics.”
Like many analysts, he expects oil will fall further, citing a host of bearish supply news, such as expectations the U.S. will export more of its oil and record production levels from Iraq and Russia.
Just this week, global oil prices have dropped almost 10 percent amid mounting worries about a supply glut. U.S. crude closed at $47.93 per barrel Tuesday, the lowest settlement since April 2009, down $2.11 on the day. Benchmark Brent crude fell to a session low of $50.55 a barrel, its lowest since May 2009, in late afternoon trade Tuesday in the U.S., down more than 55 percent from its mid-June level.
One tool Keenan is watching is trade in put options — or contracts giving the buyer the option to sell assets at a particular price by a set date.
“In the wake of this recent price fall, they’ve been quite accurate lead indicators of where prices are going to go,” he said, noting many puts are being bought on Brent at $40.
“Option positions established in Brent tend to be more purposeful and done by quite sophisticated investors because its slightly less liquid and so quite revealing sometimes of where we’re going to go,” he said.
Beyond that, he’s looking to less obvious indicators, such as U.S. employment data, broken down into sectors such as pipeline production, oil extraction and oil services.
“If we start to see changes in these profiles, that would be suggestive certainly that these companies are looking to rein in production and production growth is going to slow,” he said.
Keenan’s also looking to U.S. railcar traffic, as shale oil tends to be produced in land-locked regions, away from main pipelines and is often transported by rail. He also is looking to oil-drilling rig counts and production per rig.