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www.fueloilnews.com | FUEL OIL NEWS | FEBRUARY 2016 25 Milne (in line with our other interviewees) noted that we do not have the traditional supports that used to be in place. OPEC is not acting like a cartel, which would have meant a cut in production to support a higher price. The price war is ongoing, and the Saudis and Iranians are not cooperative in most areas so there is little likelihood of an agreement to prop up prices and in fact the likelihood is for even greater price competition. On the upside, Levine noted that it would be hard to imag- ine crude anywhere over $50 per barrel. "It's the resiliency of American production that's making all the difference," Levine said. "The Saudi's had this bright idea that [they would] really produce this stuff and those American shale producers will all go out of business. But, they aren't. Here's crude oil production in the United States still over 9 million barrels per day, what's going on? The answer is the banks are saying prices are very low right now but they can't stay that way forever, so they continue to provide risk capital for producers which is a new thing." One traditional factor that impacts higher oil prices is, of course, conflict in the Middle East. However, under our new energy reality fairly serious events that would previously have spiked oil prices tens of dollars for extended periods of time today barely create a blip in the markets. There is one recent development—the execution of Saudi Arabia's top Shia cleric, Sheikh Nimr al-Nimr— that could tip the scales. Saudi Arabia is Sunni dominated and Iran is Shia dominated. "Saudi Arabia has a new king, fairly young man, and like everybody else that's new he has to make his mark," Levine said. "They entered into a war in Yemen that didn't go very well and now they executed Nimr al-Nimr, which was very provocative and it had to be known that it was going to be provocative. We'll have to see if this becomes a shooting war. I hope it doesn't." So far, the immediate reaction from Iran, while aggressive in tone, has been subdued in action. There's no guarantee that that will continue. However, the news is still domi- nated by talk of $10 per barrel oil and not $200 per barrel oil, which certainly wouldn't have been the case just a few years previously. While the Saudi Arabia/Iran issue presents an uncertainty that might lead to higher prices, the current and troubling economic news coming out of China opens the possibility of a negative price impact. Of course, should China rapidly become the next Lehman Brothers event, the benefits from a drop in oil prices will be of little comfort in the face of a global economic collapse. Also regarding Iran, the Obama Administration's deal will likely see the sanctions are fully lifted in the immediate future, and Iranian oil supply will begin to flood the markets. A variety of traditional factors will likely cause some shifts in price as the year progresses. Sprague offered the following note on one potential rally driver. On the "rebound" side of things, there is some thought that the large number of speculative short positions in crude oil could lead to an eventual rally in prices. It is certainly a recog- nized phenomenon that market prices tend to go too far in one direction before moderating. Levine noted that the United States is preparing to sell some of its strategic petroleum reserves to underwrite some of the costs associated with the current Highway Bill, which will dump more oil on the markets. The lifting of the crude export ban was likely seen as being a down-the-road impact by Levine, given the current market dynamics and the spool-up time to get product moving. DISTILLATES As with crude, distillates have abundant supply and production. Sprague offered the following: As cheap as product has been recently, crude oil has been even cheaper. This dynamic has provided refiners with excellent refining margins which has led to a refined product