The Bear is in the Room

WTI Crude Oil continues to fall as traders lose confidence due to a multitude of reasons. The rise in U.S. production and bearish prospects of Iran's increased production and export capability have made the corporate fears of oversupply and cheap prices a reality. In the near term, this two-headed monster will continue to drive the price of WTI Crude Oil even lower. 

The Case for Oversupply

People have longed feared that oil supply will rapidly diminish within the next decade or so, but this has proven to be a myth by the reality of the current state of crude. Proven oil reserves continue to grow, from 1,400 billion barrels in 2004 to 1,700 billion barrels at the end of 2014. The idea that economic growth and oil prices are almost perfectly correlated is being heavily tested by this year's inverse relationship between economic growth and the price of oil. 

We are still very (let me repeat that, very) far away from the threat of oil scarcity in the world. Disruptive petroleum technology, natural gas and other fuel alternatives, production (Iran & other emerging markets) have provided the market with more oil than it can handle. As mentioned earlier, prices continue to plummet. This dip is a testament to the sustainability of oil reserves in the world. 

Effect on the Market

 In the near term, energy companies are taking a hit:

As we can see above, energy companies shares have been steadily falling for the past 30 days. Although they made a slight rebound at the beginning of the month, Iranian fears stopped the pop and continued the negative trend throughout the energy sector. 

Halliburton (HAL) has been a best of class performer lately by metric of damage mitigation. HAL's performance has seen a slight rebound over the past few days that has been fueled by their latest earnings reports. These report's showed that HAL has effectively cut costs. 

The bear is in the room for oil companies. They will need to get lean and re-think their business models during these times of low prices if they want to lead the energy sector. 

Greg Melon