The International Energy Agency said today in its oil market report that oil price recovery "may not be imminent," bolstering the theory of many analysts that oil prices — Brent futures are sitting under $50 a barrel and West Texas Intermediate is trading just over $47 — may decline further before they rebound.
"The IEA report is bearish, but not as bearish as other reports they've released, they're basically saying there's still a lot of risk to the downside," said Anthony Grisanti, president of GRZ Energy.
Meantime, some commodity traders are taking an interesting approach to playing the oil market, accepting physical delivery of oil at the current price, storing it both inland or at sea with the hopes of selling it at a later date for a profit. Firms like Vitol, Mercuria and Gunvor are some of the houses suspected to be using this technique.
"They're trying to lock in a lower price because when you look at the curve going forward, prices six months from now are much higher," Grisanti said.
While the store now, sell later strategy might pay off down the line, there are short-term risks, according to Grisanti "the risk is that the curve will weaken if crude futures continue to fall, and traders storing crude will end up sitting with product they got at an even higher price."
"If traders are doing this to try to call a bottom, I'd say bottoms are hard to call. Unless we have material cuts in production, then it's just too difficult to call a bottom," Grisanti added.
So how low do traders think we can go based on fundamental and technical analysis?
"Ultimately if there is no cut in production, then we'll test the three-handle in the next month. And that's a crucial window, because historically demand falls in January, then picks up in the spring in anticipation of the summer gasoline driving season," Grisanti said.