Today we look to Seeking Alpha again with this latest post describing how the oil futures market began to soften in late afternoon trading, once the American Petroleum Institute released figures showing an increase in inventories of 2.6 million barrels – versus a consensus that there would be a draw-down of some 200,000 barrels.
Again, as I mentioned earlier this week, this is because – despite notions to the contrary – there have been no fundamental changes to the oil and gas markets. Saudi Arabia remains open to “cooperating” with other producers out there, and said so; but Saudi Arabia has been open to cooperating with other countries since the founding of OPEC… so… what, exactly?
Sure, there are the recent events in Turkey and Syria that are certainly worth our attention… but, here’s a little something to chew on: These countries deserve our attention for humanitarian reasons, but neither of them produce a spit’s worth of oil – so their impact on the world oil market is negligible at best.
A Russian fighter jet was shot down over Syria / Turkey you say? Well, then I guess the Russians will have to pump that much more oil to make up for the several million dollars it just lost. Such is the relentlessly heartless calculus of the world oil supply.
The supply lines of ISIS have been disrupted, you exclaim? ISIS was always a very marginal producer – with declining production trends… and guess what else! Their oil could only be bought and sold on the black market anyway. Nobody (not even oil companies!) wants to be seen doing business with these guys, and would likely be subject to near death penalty sanctions in their home countries if they were caught doing so. That means that ISIS is likely selling small lots to individual intermediaries (with relatively little at stake) – and doing so at a HUGE discount… So… again… marginal effect on traditional markets.
Again, any disruption in the flow of ISIS oil is good for humanitarian reasons but won’t make a lick of difference on the world oil markets. When ISIS started losing Kirkuk, they lost any prospect at real refining capacity… that was the end game for their production cycle and any hope of generating a significant revenue stream from petrochemicals. That, and ISIS has this nasty habit of killing anyone who might be educated (engineers are pesky in that they are almost a necessity for any real activity involving oil and gas production).
Now we’re all just stuck with the fickle fundamental forces of supply and demand. This is unfortunate for the oil industry… but, again, great for humanitarian reasons. As I have mentioned obliquely before, lower energy prices are a remarkably progressive economic stimulus… not just for Americans, but for everyone around the world – except oil companies. The fact that it also harms efforts at funding terrorism is just the greatest icing on the cake in the world.
I am not a smug person by nature, but you can see that IToldYouSoCat is not as polite… He is the one who taught me supply and demand and is pretty smug about the truth of our predictions. Nobody likes cats.