Bullish not bearish decision todayA very smart fella ran some valuable thoughts past me today and I felt they were worth sharing ...........
The agency’s move sent oil prices tumbling.
But Gregor Macdonald at gregor.us outlines three reasons it’s not a good thing:
…the IEA inventory release implies that whatever extra supply Saudi Arabia can offer, it is either too sour and heavy to bring down the price of global diesel, or Saudi can only pump extra oil for short periods of time. In my view, both of these factors are in play.
Releases of oil from inventory are counterintuitively bullish, not bearish, for prices.
By knocking price down, the IEA is threatening the vast quantity of marginal supply that has come on stream the past two years. Much of this oil is broken free from shale, drilled at great depths in oceans, or converted from oily dirt (tar sands). To the extent that price is knocked down by such actions, this will affect the future development plans of those Oil and Gas producers who’ve been engaged in bringing the world its new, high-priced supply.
Cheers!