Oil Price Rise Only Temporary; Could Drop Back to Low $20s

Wednesday, August 10, 2016
By Paul Martin

by Bob Adelmann
Wednesday, 10 August 2016

n light of record supplies of gasoline and crude oil, why are prices rising? After hitting a low of $26 a barrel in January, crude oil topped $52 a barrel in early June, only to drop below $40 a barrel last week. The recent rise back above $40 is a head fake, according to oil analyst Stephen Schork, editor of the daily subscription Schork Report. The recent bounce forced massive short covering by traders convinced oil was headed back down to the $20s and had nothing to do with the fundamentals.

The fundamentals, according to Schork, are bearish for oil (and gasoline) prices, and not likely to change any time soon. Even the Energy Information Administration (EIA), the government’s watchdog agency in charge of predicting the future, has been forced to revise downward its estimates of the price of oil and gas for the rest of the year and into 2017.

The report from the EIA on July 29 showed crude oil inventories at 522.5 million barrels, “historically high levels for this time of year.” This despite the fact, as Schork noted, “We’re in the midst of the strongest demand season ever. Gasoline demand has never been stronger.”

Apparently that strong demand (national park visits are setting records this year) hasn’t dented the overhang. In a conversation with Howard Gold, another oil industry analyst who is also bearish on the price of oil and gas, Schork said: “We know there is a massive glut of oil out there. We have oil sitting in tanks here in the United States … oil sitting in tankers off the coasts of Iran, Singapore [and] Texas,” adding that “as long as the Saudis [which just reported record levels of output] and the Iranians [who are almost back to pre-sanction oil production levels] continue to pump oil, continue to fight for market share, as long as they continue to put oil on the market, the market [will remain] glutted.”

The Rest…HERE

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