Flowers Consulting Blog
As we start the new year, the price of oil is hovering at $37 per barrel for bellweather West Texas Intermediate crude. This is a particularly low price and there are analysts that claim that the price may well drop to $20 per barrel before the inevitable upswing starts. This may be unduly pessimistic but it's worth mentioning.
The forecasts by service company presidents back in July 2015 indicated that the bottom had been reached at around $47 per barrel only to be proven very wrong. Actually, a cold look at the indicators should have been enough to see the optimism in those remarks as simply wishful thinking. Saudi Arabia was showing no desire to slow production, US domestic producers were stubbornly continuing to produce oil, and storage capacity in the US was filling up to its maximum. The chinese economy had settled into a lower growth model without difficulty. Hardly any indications that the supply and demand equation for the commodity was in an inflection point.
Fast forward to today and Saudi Arabia has not only not slowed production, it has ramped up its production, China continues in slow growth mode, and the US is facing a mild winter. In short, the fundamentals are not showing a change as we start the new year.
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