Amazing how there is a new consensus building so quickly right now. It goes like this. News flash: the moment the Iranian sanctions are lifted, they will pump 500,000 barrels more a day; a month from the lifting, they will pump one million more barrels a day.
This at the same time that production hasn't been cut back in the U.S. and isn't going to be in Saudi Arabia. We have full-up inventories, the most in five years, and we have no place to put much additional oil. That means oil is headed to $30 in a heartbeat. Stuff might as well be coal.
Get used to it.
Yep, that's the consensus. It's as thick as the consensus when we were at $60 that we were going right to $70.
So here's the question. Why are we importing the same amount of oil that we did last year at this time? If we are producing so much more oil, why do we keep importing it?
If there is such a glut, then why not stop importing it, turn off the spigot, shut down the ships?
If there is such a huge glut, then why did Exxon (XOM) raise production this quarter? They didn't need to do it. They obviously saw demand for it.
I think the glut story is overdone. I believe that the extremely negative read-throughs we got from Royal Dutch (RDS.A; RDS.B), Exxon and Chevron (CVX) are simply occurring six months later than we thought. They just didn't see it coming. They think long-term, and many of the projects that are now hitting pay dirt were started when oil was in the $90s.
Those kinds of projects are not getting started anymore.
Now, I have been a big believer that oil has to retest the $43 level. But if there is such a glut and we know Iran is going to be pumping like mad, why isn't oil lower already? And why not turn off the imports to our country? We obviously don't need as much of them if production is growing...that is, unless it isn't.
I went through those miserable Chevron and Exxon quarters and I said to myself, oil has to go down, and down big. But it hasn't.
The reason? I think demand is a lot stronger than people realize. I think demand is coming back here and in Europe, and that's why we haven't see the slice through $43 yet.
Now, it is possible that there are still some people who think Obama won't get his way in this Iranian treaty. I think he is always misjudged in his effectiveness on these issues. This thesis holds that the moment the ink is dry, that's when oil plummets. Let's stipulate this, though. If it doesn't go to the thirties in that scenario, maybe it just won't.
Something to watch for. Otherwise the big "glut" may not be as big as you think.