“As the world continues to face the truth—we are living in an oil market where supply will continue to be greater than demand for the remainder of 2016—prices renew their downward trend,” said Daniel Holder, commodity analyst at Schneider Electric.
Investment sentiment has weakened as international sanctions against Tehran’s nuclear program could be lifted as soon as this weekend, which is likely to lead to a gush of Iranian oil exports.
“Assuming sanctions are lifted, we have Iranian supplies coming back by around 0.5 [million barrels a day], although the increase will not be straight away,” said Matt Parry, senior oil analyst at the International Energy Agency, told MarketWatch in a recent email interview.
Investment confidence is down they tell us and consumer confidence is up from what we read.
It's assumed that the Saudis can't suddenly cut production because they use the revenue to prop up the welfare state without which the whole charade will come tumbling down. It's assumed Iranian oil will soon find its way to the market once nuclear sanctions from the west are rolled back and that the transition will be a smooth one. It's assumed that the Fed and other central bankers around the globe know what they're doing and they will lead rather than trail the curve. It's assumed that the U.S.dollar will remain strong throughout 2016. It's assumed Hilary will be the next president of the country.
It's been assumed for a long time that China's GDP numbers were accurate. It was assumed that ZIRP would bring the common guy back into the market. It was assumed that consumers would spend their savings from lower gasoline prices in the stores rather than driving more miles. The assumptions are like politician speeches: They go on and on. Economics is the dismal science of assumptions, nothing more. Be careful relying on their data to invest your money.
We don't know Warren Buffett, the Omaha Hypocrite, but he just, according to recent data, increased his holdings in Phillips66 by some 900,000 shares at a price in the low 70s. We know refiners are expected to continue to do well in this low-price energy environment. We don't know Mr. Buffett's reasoning and we don't care to guess. Either the old guy knows what he's doing or he doesn't. That's up to you and his history to decide.
What we do know is we're seeing more and more articles about oil prices rebounding. What we also know is that if and when a rebound occurs, the first one or two rebounds will be the low-hanging fruit, the easy money, so entry points matter or, as Mr. Buffett has preached for years, margins of safety.
The more energy prices falter, the closer we're getting to decent margins of safety, value traps notwithstanding. A 2016 outlook is a short-term outlook in our view. And that's pretty typical of the Homo sapien species.
Be careful of assumptions.
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