Oil prices broke hard after the Saudi-led coalition in Yemen ended its "Operation Decisive Storm" in favor of what they are calling "Operation Renewal of Hope" that will focus on trying to find a political solution to the threat from Yemen.
This was a shock because just 24 hours earlier, the market was worried that the U.S. had sent its aircraft carrier the USS Theodore Roosevelt and its guided missile cruiser the USS Normandy to the coast of Yemen to blockade Iranian ships that might be carrying weapons to support the Iranian Houthi rebels in Yemen. The about-face by the Saudi-led coalition may have happened due to the show of force by the United Sates which led to some back door politicking which led to the cease fire.
Oil also fell after a report from the American Petroleum Institute showed crude oil stocks rose by 5.5 million barrels. While the increase was more than expected, the market found some support, as supply in Cushing Oklahoma was raised by only 572,000 barrels. Refinery runs fell by 0.1* and that may have fed into the increase. Gas supply did rise by 1.1 million barrels and distillates by 1.7 million barrels.
*That is probably %, but not totally sure.
Despite the recent weakness in prices, there is a growing sense that the Ultra Bears gauging the price of oil had it wrong. One of my arguments that a bottom was in, was the historic rate of capital spending cuts in energy and the historic speed at which energy companies acted to make cut backs. That view is being shared by Glencore PLC Chairman and General Energy PLC Chief Executive Tony Hayward. He told the FT Commodities Global Summit commodity conference that Capex cuts are paving the way for the next oil bull run.
As reported by Dow Jones, Hayward, the former BP PLC CEO said: "The supply chain in the U.S. is being decimated. Even if prices recover, the ability of the supply chain to respond will be severely impaired and it will take several years to get back to where we were." He added that oil production in the U.S. has already peaked, in the face of a clear challenge from the Organization of the Petroleum Exporting Countries for market share. "OPEC has demonstrated it is the most effective cartel in history," Hayward said. Meanwhile, the energy sector is likely to go through a wave of consolidation.
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