The financial infotainment industry has hyped the diplomatic tension between Iran and Saudi Arabia as a geopolitical risk that will support crude-oil prices. There's a reason Monday's pop in crude-oil prices was so short-lived: this narrative just isn't true.
The financial media tends to exaggerate the influence of geopolitical developments on oil prices, especially to explain daily moves in these commodities. But today's market hold more in common with the 1990s, when the price of West Texas Intermediate crude oil actually declined at the height of the Gulf War.
The financial infotainment industry doesn't let the facts get in the way of a good story, especially when it comes to the oil market and its complexities. Recent articles hinting that Saudi Arabia and OPEC could reduce oil output to support pricing may attract eyeballs, but they represent shoddy journalism. Elevated inventories and the impending refinery turnaround season suggest that oil prices will suffer another leg down.
Data from the Commodity Futures Trading Commission indicates that hedge funds and other institutional investors have shorted the equivalent of 160 million barrels of West Texas Intermediate via futures contracts.
Fluctuations in the US dollar's value relative to major international currencies can influence crude-oil prices. But many more important factors are also at play. Right now, elevated oil inventories, resilient US production and the prospect of refinery turnarounds set the stage for seasonal downside in the price of West Texas Intermediate.
US propane production from gas-processing plants surged 15.6 percent last year to 823 million barrels, a new record.
And this explosive growth looks set to continue over the next three years. The Energy Information Administration’s most recent Short-Term Energy Outlook implies that propane output from US gas-processing plants will grow 21.8 percent over the next three years and exceed 1 billion barrels in 2016.
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