Thursday, January 21, 2016

Oil Price: 2016 won't be good to it

There are a lot of moving pieces with the price of oil, but the bottom line is supply and demand is still the major catalyst for the price movement, and oversupply will continue to be the story throughout 2016, and probably further out.

No matter what type of ancillary stories are published in the financial news, investors should almost solely focus on the supply/demand trend.

I say solely because there are other factors when diving deeper into individual companies. But when looking at where the price of oil is going, the supply and demand equation is by far the most important piece of the price puzzle.

My point is we need to keep from being distracted by other data thrown into the mix. It will have some importance, especially as it relates to certain companies, but it won't have much of an impact - if any - on oil prices.

Not only is the market going to continue to supply more than demand, but supply is going to rise even more with the introduction of Iranian oil into the export market. That will happen fairly soon. The goal of Iran is to boost supply by at least 1 million barrels a day. It hopes to do that by the end of 2016. That may be a stretch, but there is no doubt it'll significantly increase the supply of oil in 2016.

Demand will not be able to keep up with it. It already was going to be difficult to match the oversupply already in the market. Adding Iranian and other oil like that in Indonesia and probably Libya, will continue to make things worse.

More on the 2016 oil price outlook

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