The hole in Pickens’ argument, according to Gartman, is the assumption that crude oil producers are ready to cut production. Russia, Iran, Saudi Arabia and Venezuela, to name a few, are still pumping at record levels, but for different reasons.
“You hear talk about the Russians wanting to reduce supply. They can’t possibly because a good three-quarters of where they produce their oil is in very cold areas in Siberia. They don’t have those pipes insulated, they have to continue to pump crude oil through there,” Gartman said. “The Iranians and the Saudis hate each other. They have, for lack of a better term, a war going on — a gas price war. They’re not going to let go.”
The most important incentive to many of these countries is free cash flow, Gartman said.
“When you need cash flow, you produce and you don’t really care where the end price is. You keep producing it.”
In the longer term, Gartman sees oil in a $27-$47 range with many of the volatile swings behind it.
“The bear market has not ended in oil,” said Gartman. “If we start to go sideways for four, five months, companies will become profitable again at these levels.”