Oil Market / Price

The view here has been that even though there is a good chance that global oil demand / supply
will come into reasonable balance by the end of 2017, producers pressured themselves to reach
an output cutting agreement this autumn rather than face another early winter sharp seasonal
drop in the oil price. And, presto!, the boys have an agreement with Saudis and OPEC taking the
lead. Everyone knows there is going to be cheating, but the hope among producers is that the
price will hold over the next couple of months, some cheating notwithstanding. By Feb., the
process for gearing up output to ready for the peak drive period will be underway and the
industry can start looking to seasonally higher prices. A consensus is emerging among industry
observers that crude should trade between $40 - 60 bl. in the months ahead.  WTIC Weekly

The oil price began to turn positive early in '16, but currently remains tentative until crude
begins to clear $50 on the upside. Good to remember that with weak demand, no one would
be shocked if the price tested the $40 area again before moving higher again in late winter.

Consensus is that the entire oil output industry becomes profitable again around $55 bl. As
shown on the chart, the current 52 wk. m/a is about $42.50., so the boys are still running well
in the red on an annual basis. The bottom panel of the chart shows the 52 wk. ROC% for
oil. It is now strongly positive, so producers are going to show less awful results and SP500
net per share will receive a nice shot in the arm going forward. With oil price momentum
improving you can also expect higher inflation readings around the world.

Producers plan to re-visit the production curtailment around the end of May. If there is not
widespread cheating, the emphasis will be on whether there has been any progress in paring
the outsized inventories of crude and byproducts. I doubt now that there is much of any
consensus on where the oil price may be later in 2017.