Oil Falls Below $45 as OPEC Digs in Heels

The United Arab Emirates calls out the U.S. shale producer and basically asks are you ready to capitulate? Oil traders may be asking that of the oil market as well, as the market gets close to hitting a historically significant price point, $41.40 a barrel, the first Persian Gulf War high and the high price in the go-go 90’s. It was also a price level that many in the nineties thought we may never see again. Just like Prince Alwaleed’s pronouncement to FBN’s Maria Bartiromo that we will never see $100 again. While I agree that we may not see $100 a barrel for maybe a decade or more, when it comes to oil you never say never.  Get ready for a potential wild ride today, and perhaps we could find a short term bottom.

Of course we are testing lower overnight. The United Arab Emirates' oil minister, Suhail bin Mohammed al-Mazroui, said “that the country’s oil output and strategy will not change and is telling the market and other producers that they need to be rational". You know kind of like making the U.S. shale producer an offer that they can’t refuse.

Another sign that capitulation may be coming is some bold pronouncements on where oil may never trade again. When Saudi billionaire businessman, Prince Alwaleed bin Talal, told Maria Bartiromo that  we will not see $100-a-barrel oil again, the market sold off. It seems that the Prince’s negativity reinforced the bearish sentiment. There is no doubt that $100 barrel oil won’t come anytime soon, but again, never is a long time. Yet he did change his tune by saying that the Saudi decision to not cut production was the right one because it would have only meant that the Saudis would lose market share as other producers filled the void. It seems that reluctantly the price is now onboard with the OPEC price war.

One supportive factor was China oil imports. Last month China imported a record 30.37 million metric tons of crude oil in December, which is about 7.2 million barrels a day. That is just 2 million barrels less than the U.S. produces each day and 13% above the record high set in January 2014 of 28.16 million tons. Of course many speculate the real reason that China is buying crude is to stockpile it so the demand numbers might not exactly be indicative of current strong demand.

We will also see the dollar add pressure as deflation fears continue to mount and UK Bank of England Governor Mark Carney is going to have some explaining to do. The UK inflation fell to 0.5% in December, the lowest on record, and a rate that will require that he explain just why the UK is faced with a deflation threat. Can he say oil?  Or maybe copper that hit another 5 year low? Or maybe just say oooppps.

Get ready for the API report tonight! Also we get the Energy Information Administration “Short-Term Energy Outlook”!

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