The world oil market is in "much, much better health and balance" now and, if trends hold, there will be no need for further production cuts or increases in supply when members of the Organization of Petroleum Exporting Countries meet in March, Saudi Arabian Oil Minister Ali Naimi was quoted as saying in a media report.
Naimi said the kingdom's production is now 8.5 million to 8.6 million barrels a day, confirming its reduction by 1 million barrels a day from its output about six months ago, The Journal said. Mostly mild winter weather, heavy selling by financial funds and falling oil use among developed nations have contributed to prices dropping from the record $77.03 a barrel settlement price last summer, The Journal said.
Saudi Arabia's 1-million-barrel-a-day reduction, reported in The Journal in January, is nearly double what it agreed to under two OPEC output cuts hammered out by the cartel at meetings in Doha, Qatar, in October and in Abuja, Nigeria, in December.
We have two major oil producers lowering supply by 1 million BPD each. At the same time we had a mild winter in the US, lowering supply. In other words, we have lower supply and lower demand, at least for now.
According to the latest This Week In Petroleum oil stockpiles are above average and gasoline stockpiles are spiking. This may mean a lowered short-term demand from the US, further lowering prices.
However, we still have India and China growing at a quick pace. This may ameliorate the drop-off in US demand.
And remember we are dealing with oil -- a commodity located in a geopolitically unstable region.
So -- short version, $60/bbl still seems to be the line where certain energy stocks may start to rally. That's a completely arbitrary line on my part. So while the short-term pull-back in oil makes a move into the energy sector unwarranted today, a return to that level in the oil market may still be attractive when and if that level comes.