Yes, oil is flowing in the streets along with the blood in the streets which means it is time to buy.
When the US was pumping out gasoline reserves in the beginning of this nastiness between Russia & the US,
I believed that pumping of gasoline along with rising oil stockpiles was related to US nasty rhetoric and sanctions with Russia. That was an expensive miscalculation on my part because it looks like Obama knew what was coming and he was just taking a profit. I currently suffer from no such delusions--the oil glut is painfully real. The question now is how to profit from it.
It was both the forward guidance of the Fed, and analysis of the current economy that caused the market assessment of the first rate hike to be pushed farther away, and the dollar to drop against other currencies. Since oil is priced in dollars, it rallied.
Let's say the Fed had been Hawkish today and dropped "patience" AND raised interest. Also, let's say the economy was doing well enough to handle it. Then, the dollar would have strengthened. A stronger dollar would decrease the price of oil in dollar terms because oil is priced in dollars and you have to account for the change in currency. Also, import prices would drop, lowering factory activity in the US to drop also because there would be less demand for locally produced goods. Export prices would increase in terms of other currencies, causing fewer exports which would also cause US factory activity to drop along with it. All of these things would shaves percentage points off GDP, causing a decline in stock prices.
Therefore, with all the ongoing money printing by central banks around the world, the Fed came out with a dovish statement.
Every time the technicals start looking really good, the media and analysts start hammering us with the fundamentals and the technicals break down.
Ron, the article leaves out the elephant in the room--hedges. I wish I had access to the data of the total dollar value of the hedges on a graph of expiration date over the next couple of years. That's why there is such a disconnect between the price of oil and the amount being pumped. If someone is getting $90.00/barrel for their crude, they will pump it. It's the other side of the hedge trade that is taking it in the shorts.
Another factor keeping oil flowing is the lease contracts signed. Most of them have clauses that prevent the oil company from just sitting on the land without pumping. Of course it might be unlikely that owners of the land and rights would push this issue without another suitor lined up which might be less likely at this time or, if so, the terms would likely be less favorable to the lessor. With all the pricing pressure on oil, I would expect oil companies to offer less money on new leases going forward. To give an idea of how this could go, I have a small piece of inherited land in Texas where we know there is oil. I signed a contract on my share last year when oil was still high. Aside from the signing bonus, we get 20% of production. So far I have received no money besides the signing bonus.
So with the hedge and contract factors, the glut goes on--until it doesn't. This is why these wells have been drilled but no fracking is happening with them. Who wants to pump oil at a loss? This is exactly why they won't pump them to drive prices down when oil recovers to the $60-70 range. At least this is the best guess where the balance will be when the hedges wear off. Also, it costs another one million dollars to get ready for the fracking per well. The article says EOG has 285 wells ready to go which will cost $285 million unless costs go down when they are ready to get them going.
"If oil prices stay at these levels"
I haven't heard any credible predictions that oil prices will stay in the forties for two more years.
You"re right cat, it's going to zero, but since I feel sorry for you, I would be willing to help you out and buy your shares for 10 cents on the dollar. I realize it's a loss for me but I will look at it as an act of charity.
True, but I wasn't looking to spread the news. I was asking how this would impact the bottom line. I am thinking it will not have a major impact.