I remarked to Jim that I had never seen a market with as many geopolitical stresses in my almost 30 years of oil trading with so little price response.
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Sanctions on Russia, specifically targeting the three largest state-controlled oil companies, will constrain credit and certainly impact Russia's ability to grow new production and maintain current levels. Russia is the world's largest provider of energy with almost 11 million barrels of oil a day and 21 trillion cubic feet of natural gas.
Iraqi oil production remains at risk from the growing ISIL threat with the Kurdish Kirkuk superfield at greatest risk of reduced output. Add the continuing issues in Libya, Syria and Egypt and the risk of a widespread Ebola outbreak in Nigeria cutting output and I have to wonder how oil prices can possibly drift lower.
And yet, the oil market seems much more concerned with the relative strength of the dollar and some weak Chinese data points. In the last several years, financial connectors like these to oil prices have always been trumped by supply chain risks of geopolitical dust-ups -- but that doesn't seem to be the case today. Jim and I both agree -- oil is headed lower, at least at first.