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Oil Update–February 2016

In December of 2015 I indicated that I was no longer confident that oil would not remain in the US$30s for more than two months. Well, now that we are at the end of February 2016, we see that oil has remained in the US$30s and even briefly sunk lower.

The question now is, where will oil prices go from here? Unfortunately, I am not optimistic about a quick recovery. I have been following as closely as possible various news articles related to oil. Some members of OPEC plan to convene a meeting by mid-March in hopes of achieving a production freeze. Because I doubt that Iran will agree to a freeze as it ramps up its production back to pre-sanction levels, I am doubtful that OPEC and others will agree to a production freeze. Even if they were to agree, with or without Iran, I am not sure that it would have much effect. The world is still awash in oil. And as we have seen in recent weeks, prognosticators seem to be lowering their price forecasts. Moreover, there is still considerable uncertainty about the strength of the global economy and its desire for more oil.

I want to wait for a few more months to see how world oil production reacts to these very low prices. Do these low prices finally cause oil production to fall more precipitously than was previously expected or does oil production remain resilient?

I honestly do not think anyone has a very good crystal ball at this point. So we wait for more information.

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