Major oil producers are considering extending their efforts to curtail global petroleum supplies and raise crude prices, report Justin Scheck and Summer Said.

Major oil producers are considering extending their efforts to curtail global petroleum supplies and raise crude prices, report Justin Scheck and Summer Said.

In an interview Saudi Arabia’s energy minister, Khalid al-Falih said members of the Organization of the Petroleum Exporting Countries have “a strong willingness” to extend their production-cutting deal when they meet in May.

Mr. Falih said OPEC and external producers including Russia, which also agreed to the deal last November, have shown discipline in implementing the cuts.

But privately the Saudi’s have expressed displeasure with the level of commitment from other producers.

The kingdom has borne the brunt of the oil cartel’s 1.2 million barrel a day production cut. And recently the Saudi’s have been sending strong signals that they won’t keep cutting back oil output unless other big petroleum producers fully join in.

Wall Street Journal Energy Report, March 17, 2017.

That is a lengthy excerpt but it perfectly frames the problems OPEC labors under. And those are

•No enforcement mechanism

•Saudi therefore is always having to be the swing producer, i.e. the only OPEC member not cheating who has to cut back.

•And then there are the non-OPEC members like Russia that OPEC certainly cannot control.

This was the source of the final collapse in 1986 from $18 to $12. Saudi grew weary of being the only party to cut back and finally said, enough! The world was flooded with oil and the prices dropped accordingly.

Prices for West Texas Intermediate Crude WTIC have not been able to surmount the $55 barrier. Amid reports of growing supplies, prices fell to $47. Then came the announcement Wednesday that no supplies were not as high as first thought. And by golly demand may be higher as well.

Really, does anyone know just how much oil is stored around the world or just how big demand is? The reality is that oil prices bounced at their uptrend line which is the $47 level. Heating oil and unleaded gasoline also followed suit advancing the last two days.

Natural gas has been subject to even more media coverage about excess supply. But it too has rallied from late February. Clearing $3.10 is necessary to get things going again.

Master Limited Partnerships which is in the pipeline business, also rallied this past week. Exxon Mobil remains in weak position. Halliburton has also corrected bouncing off its 125 day Moving Average.

We are now eight years out from the Financial Crisis of 2008. Memories of the crisis dim as more investors pile into Exchange Traded Funds. Both Jon Hussman and David Rosenberg have declared the markets to be in "over bought" territory. In fact the time of this bull market since 2009 exactly matches the duration of the 1920 bull market as of today, March 17. Other cycle deadlines occur into the month of April.

Two years ago Transports made a high and then retreated for 18 months. I mistakenly took that as a sign of a top, only to be proved wrong, very wrong, since last February. Transports have now dropped below their 50 day Moving Average of 9293. That bears watching as the Transports need to rally along with the Industrials to confirm a continuation of the rally.

I offer no apologies for my caution. Or as the saying goes, I would rather sell five months too soon than five days too late.

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