"Today's Musings from the Oil Patch includes data on oil demand, which is now forecast to be down over 1 million barrels per day when compared to last July's estimates. This forecast still includes a pretty robust increase in demand in Asia, which is expected to be reduced, though of course demand there will continue to grow. The attached is certainly worth reading.

"As most people who are not comatose know, the prices of crude oil have been coming down very very fast. This, despite the USA's use of oil as a strategic weapon against Iran, which, under "normal" circumstances, would add considerably to the price of oil, especially now. The ultra-low US prices for natural gas are having a minor impact on short-term oil prices (natural gas is not an "easy" substitute for petro liquids in most processes, and crude oil plays a very small part in US power production), but a much larger impact on coal prices (as many North American power plants can use either coal or natural gas, and many power producers have the ability to switch between different power plants to minimize costs). One should note that Saudi Arabia continues to produce oil at rates that are significantly higher than is justified by the current price profile.

“Now the Saudi's are not prone to allowing the price of oil to drop too far, so one has to wonder if this continued production is about to slow significantly, or, if just possibly the Saudi's are playing a bigger card in the Great Game. It strikes me that the country which is getting hurt the most by the lower oil prices is Iran, and further lowering will hurt them even more, especially now. We just might be witnessing the next chapter in the ongoing war between SA and Iran. If so, it is pretty clear which one has the most petro dollar bullets... and oil may be mightier than the sword."

Eoin Treacy's view Thank you for this edition of PPHB's ever interesting report. Oil is not only the most important of commodities but also by far the most political. It is not beyond the bounds of possibility that Saudi Arabia is continuing to increase supply in order to make life difficult for Iran as European oil sanctions loom. However, let us focus on the chart action for our trading and investment cues because the price represents reality.

Brent Crude Oil had become deeply oversold when it found at least short-term support in the region of $95 on Monday. It has since bounced rather impressively and a clear downward dynamic will be required to question current scope for a further unwind of the short-term oversold condition. West Texas Intermediate has returned to test the $80 area and is also bouncing.