The ‘dead cat bounce’ is a term I learned upon entering the propane industry back in 1996…it’s a crude term, but one that is effective, if not blunt; even a dead cat will bounce if it’s dropped.
Obviously, that bounce doesn’t last.
I think that is what we are seeing with crude oil, with the brush up in Yemen providing the bounce to overwhelmingly bearish crude oil fundamentals.
Then add into the mix possible new supplies hitting the market from Iran, if the United States finalizes their nuke deal with the oil superpower and Iranian reserves begin hitting the market again.
“Any relaxation of Iran oil sanctions could see increased exports adding to swelling global supplies and further pressuring prices,” ANZ bank said on Monday. In the United states, the oil rig count continued to fall as producers adjust to lower prices, although analysts said that lower drilling activity would only affect actual oil production later this year.
“The current rig count is pointing to U.S. production declining slightly sequentially in 2Q15 and 3Q15,” Goldman Sachs said in a note. Despite the expected dip, Goldman said that drilling could bounce back in 2016. “U.S. producers are preparing to ramp up activity later this year by successfully raising equity and building an uncompleted well war chest. Coupled with the large availability of external capital, this leaves risk to our $65 per barrel 2016 forecast skewed to the downside as these assets will quickly be deployed in a lower cost environment,” the bank said.
I’ll go broken record here..and it’s going to continue; I don’t see any upside in crude oil until demand outpaces supply and for a long time. Barring significant and entrenched geopolitical unrest, crude oil is going to fall and with it, propane prices. Crude price spikes will likely be short lived and not based on the longer term and presently bearish fundamentals.
For those of you who operate in areas where indexing is prevalent, this isn’t a concern to you as you will be able to participate in the downside with the option of converting to fixed pricing when you need to. For those of you in areas where indexing is not a part of your supply options and you primarily purchase fixed priced contracts, I’d hold off on buying at the present time.