Energy Commodities
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Oil breaks into the $40s, hitting new 2018 low. (17 Dec 2018) Oversupply and concerns about a global economic slowdown helped drive down crude oil futures down to their lowest level since August of 2017, falling 25% in the last three months alone. That's great news for drivers, not so much for US drillers. However, oil would have to drop to the mid-$40s range for most drillers in this country to see their profits evaporate. It was just a few weeks ago that the OPEC/Russian alliance agreed to cut production by 1.2 million barrels per day (BPD), but considering the fact that the US is now producing a record 12 million BPD, and that Russia will probably cheat (low oil is killing their economy), downward pressure remains intact. Additionally, Mexico's President "Amlo," who took office on 01 Dec, announced plans to raise that country's oil and gas output by 50% within the next six years. US light crude closed Tuesday's session at $45.91 per barrel. Despite the oversupply and global growth concerns, the mid-$40s is, we believe, the bottom channel for US light crude. For action we took in this area, members can visit the Trading Desk.
Another crack in the bloc: Qatar to leave OPEC. (06 Dec 2018) In the big scheme of things, Qatar is somewhat of a blip on the radar screen within OPEC. In fact, you have to go through ten countries—from a production standpoint—until you get to the peninsular Arab nation. That being said, the country's decision to leave OPEC after 57 years (it joined the year after the organization was founded) is another sign of trouble for the once-dominant oil producing cabal. Why is Qatar leaving? In the first place, it has had a long-running spat with Saudi Arabia, OPEC's titular head, with the Saudis accusing Qatar of being a state sponsor of terrorism. Secondly, the country wants to curry favor with the US, and sees this as a way to stick it to Saudi Arabia and cozy up to the US at the same time. Qatar has some leverage: the country's breakeven point on oil—the point in the fulcrum at which it can still maintain a balanced budget—is $47 per barrel versus $88 for Saudi Arabia. Additionally, the tiny country is the world's largest exporter of liquefied natural gas (LNG), so its reliance on oil is not as high. The move by Qatar, from the US standpoint, is a good one. Not only does it hurt OPEC, it keeps the US/Qatar alliance strong, and weakens the ties between Iran and Qatar. This move should help to keep oil prices near the lower band of their recent channel.
Oil futures just broke into the $50s in longest daily losing streak since 1984. (09 Nov 2018) Approximately one month ago, on the 3rd of October, crude was going for $76.24 per barrel, and consumers were paying out the nose at the pumps. Now, just four days after the much-hyped new Iranian sanctions went into full effect, oil broke into the $50s, closing Friday at $59.87 per barrel. Once again, the oil experts were wrong. And oil in the $50s is great: it provides some relief at the pump but still offers some nice profits to US drillers. Speaking of which, the US just hit another historic level of production: 11.6 million barrels per day. OPEC and their quasi-partner Russia are now threatening more cuts to increase the price of crude; let them, the American energy renaissance is alive and well (despite the Obama-appointed federal judge in Montana who just placed the Keystone Pipeline on hold once again).
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Crude hits four-year high, but not everyone is hurting. (26 Sep 2018) Most people cringe when they see the price of oil go up. Not only does that equate to spending more money at the pump, it also helps many of our enemies, or at least "questionable friends" around the world, such as Russia and OPEC member-states. Since America's energy renaissance, however, at least we can take a little comfort in the fact that the American energy sector, and its mostly blue collar workforce, also reap the benefits of higher oil prices. Take a look at the chart: crude just hit $71.76 per barrel, a four-year high; but US oil production followed suit, hitting a remarkable 11 million bpd. With new Iranian sanctions taking effect soon, industry experts are predicting further gains, but we appear to be at the high point of a channel. The one bright spot, we believe, is the fact that China's rate of economic growth continues to slow.
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Has the Saudi Aramco IPO really been cancelled? (23 Aug 2018) Although the press is making it sound like a new story, we reported on a probable delay in the massive Saudi Aramco IPO this past March. The real issue is the price tag: Saudi Arabia wants to raise $100 million in the IPO of its national oil company, but is only willing to sell 5% of the company to the public. That would value the oil giant at a ridiculous $2 trillion. Keep in mind that Apple just became the first trillion dollar company in the world. While Reuters has been reporting that the Saudis called the IPO off due to challenges raising the capital, energy minister Khalid-al-Falih said the public offering was still a go—just at a time when market conditions are more favorable. That probably means no earlier than late 2019. Keep in mind, however, that the Saudis need the price of oil to remain high to make this work; preferably higher than the current $71 per barrel for Brent Crude. With technology increasing America's ability to pull oil from the ground, a reduced regulatory stance in the US, and the rise of alternative energy, we believe $70 per barrel should be the high of the range. Anything above that probably has more to do with market manipulation than the forces of supply and demand.
Oil prices spike as US urges allies to boycott Iranian oil. (26 Jun 2018) Let's face it, oil and gas prices don't need much of an excuse to spike, taking more money out of our wallets. Crude got just such an excuse today, as the US Department of State said it expects allies to reduce Iranian oil imports to zero by this November or face sanctions. West Texas Intermediate immediately spiked 3% on the announcement, jumping to over $70 per barrel for the first time in the month of June. WTI topped out at $72.02 on May 22nd, and bottomed out about a month later at $64.90 per barrel. We are sure it won't take long for the fresh increase to hit the pumps.
OPEC agrees to raise output by one million barrels per day. (22 Jun 2018) President Trump reportedly asked OPEC member Saudi Arabia to raise oil output to help alleviate high prices at the pump. The Saudis want to keep America happy. The Russians want to raise output to increase revenues. Iran wants to keep the OPEC cap in place to keep oil prices high and stick it to their sworn enemy—America. In the end, OPEC did agree to "reduce the reduction" put in place via the group's 2016 deal, compromising just enough to eliminate an Iranian veto (the Iranian oil minister had stormed out of the meeting in a huff Thursday night). On paper, this means an increase of one million barrels per day (BPD) by the group's members and "friends," such as Russia. However, with turmoil and disruption in spots like Venezuela and Libya, the actual effect will probably be more like 600,000 BPD on the market, or 1/2 of 1% of global supply. Markets were underwhelmed by the decision, and Brent crude futures actually rose about 2% on the news. Who has been hurt the most by the higher oil prices? Probably India, which imports over 85% of the oil needed for its rapidly-growing economy. India's pro-business leader, Prime Minister Narendra Modi, removed caps on the price of gas back in 2014, and higher prices at the pump have been causing a consumer backlash against his government.
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Despite record US output, oil prices continue their climb on geopolitical risks
(07 May 2018) US crude oil broke through $70 per barrel on Monday, marking its highest price since 2014 and representing a 45% spike from one year ago. This occurred despite the fact that US energy production is at its highest level in history—over 10 million barrels per day are now being produced, versus around half that amount just ten years ago. With all of this added US supply, why does the price of crude continue to rise? Geopolitical forces around the globe are conspiring to foment fear and uncertainty in the energy commodities space. In Venezuela, a virtual breakdown of the government has frozen that country's oil infrastructure. With respect to Iran, fear that the president will pull out of the 2015 nuclear deal (which was horrible, even if Iran were abiding by the terms—which they are not) is putting upward pressure on prices. Meanwhile, the Saudis continue to push for $80/barrel oil as that country struggles to fund their massive economic transformation. In the past, we might have been tempted to purchase a short oil fund with prices this elevated; right now, however, there is simply too much uncertainty.
(07 May 2018) US crude oil broke through $70 per barrel on Monday, marking its highest price since 2014 and representing a 45% spike from one year ago. This occurred despite the fact that US energy production is at its highest level in history—over 10 million barrels per day are now being produced, versus around half that amount just ten years ago. With all of this added US supply, why does the price of crude continue to rise? Geopolitical forces around the globe are conspiring to foment fear and uncertainty in the energy commodities space. In Venezuela, a virtual breakdown of the government has frozen that country's oil infrastructure. With respect to Iran, fear that the president will pull out of the 2015 nuclear deal (which was horrible, even if Iran were abiding by the terms—which they are not) is putting upward pressure on prices. Meanwhile, the Saudis continue to push for $80/barrel oil as that country struggles to fund their massive economic transformation. In the past, we might have been tempted to purchase a short oil fund with prices this elevated; right now, however, there is simply too much uncertainty.
What does a delay in the massive Saudi Aramco IPO mean?
(13 Mar 2018) According to the Financial Times of London, the massive, $2 trillion Saudi Aramco IPO has been put on hold until 2019. The reason? The $2 trillion price tag. The numbers are simply staggering. The Saudi Arabian-controlled company wants to sell just 5% of itself on, more than likely, two exchanges—the domestic Tadawul exchange and a foreign exchange. New York, London, and Hong Kong appear to be the three foreign cities in the running for the ticker. Five percent of $2 trillion is $100 billion, which is what the Kingdom hopes to raise on the deal. Financial analysts are having a really tough time justifying that valuation; hence the delay. Crown Prince Mohammed bin Salman, who is in line to be the next king, needs the funds to further his massive economic reform program underway in Saudi Arabia.
(13 Mar 2018) According to the Financial Times of London, the massive, $2 trillion Saudi Aramco IPO has been put on hold until 2019. The reason? The $2 trillion price tag. The numbers are simply staggering. The Saudi Arabian-controlled company wants to sell just 5% of itself on, more than likely, two exchanges—the domestic Tadawul exchange and a foreign exchange. New York, London, and Hong Kong appear to be the three foreign cities in the running for the ticker. Five percent of $2 trillion is $100 billion, which is what the Kingdom hopes to raise on the deal. Financial analysts are having a really tough time justifying that valuation; hence the delay. Crown Prince Mohammed bin Salman, who is in line to be the next king, needs the funds to further his massive economic reform program underway in Saudi Arabia.
Crude hovers just above the $60 per barrel mark, trigger finger getting itchy
(02 Jan 2018) It's the highest oil prices have been in over two years, and it has us itching to pull the trigger on our favorite short oil investment, the ProShares UltraShort Oil and Gas ETF (DUG $36-$36-$53). With tensions high in Iran, West Texas Intermediate futures closed above $60 last Friday—the first time that has happened since the summer of 2015. Brent, the global benchmark was sitting at $66.57 per barrel by the close of trading on Monday. With US producers taking their equipment out of mothballs, expect oil to trade in a range, despite the saber-rattling at OPEC headquarters. If we are not at the peak of that range, we are mighty close. Consider the fund we have used literally since it came into existence in 2007: DUG is sitting at its one year low, down 32% since August. At $35.78, we may put this back to work soon in the Intrepid Trading Platform. If and when we do, it will be announced in the Trading Desk.
(02 Jan 2018) It's the highest oil prices have been in over two years, and it has us itching to pull the trigger on our favorite short oil investment, the ProShares UltraShort Oil and Gas ETF (DUG $36-$36-$53). With tensions high in Iran, West Texas Intermediate futures closed above $60 last Friday—the first time that has happened since the summer of 2015. Brent, the global benchmark was sitting at $66.57 per barrel by the close of trading on Monday. With US producers taking their equipment out of mothballs, expect oil to trade in a range, despite the saber-rattling at OPEC headquarters. If we are not at the peak of that range, we are mighty close. Consider the fund we have used literally since it came into existence in 2007: DUG is sitting at its one year low, down 32% since August. At $35.78, we may put this back to work soon in the Intrepid Trading Platform. If and when we do, it will be announced in the Trading Desk.
The IEA confirms it: US shale producers are OPEC's biggest enemy
(14 Dec 2017) The Paris-based (i.e. not a US shill) International Energy Agency has confirmed what we, as Americans, had hoped was true: the US energy renaissance, specifically shale production, will continue to be a nightmare for OPEC. Ever since the Yom Kippur War in 1973, it has been the goal of (nearly) every US administration to make America an energy-independent nation. Today, we can truly say that goal has been achieved. In its latest monthly report, the IEA stated that the re-ramping up of US shale production will make OPEC "not quite so happy" in 2018. The agency sees an increase of 1.6 million barrels per day in 2018 by non-OPEC nations, completely undermining the organization's plan to raise oil prices by cutting their members' production levels. This follows their failed attempt to push US shale producers to the brink of extinction by increasing production in 2016. Sweet revenge. For a taste of what hell OPEC put the US consumer through in the early 1970s, members can click the link to read the story of The First Great American Oil Crisis.
(14 Dec 2017) The Paris-based (i.e. not a US shill) International Energy Agency has confirmed what we, as Americans, had hoped was true: the US energy renaissance, specifically shale production, will continue to be a nightmare for OPEC. Ever since the Yom Kippur War in 1973, it has been the goal of (nearly) every US administration to make America an energy-independent nation. Today, we can truly say that goal has been achieved. In its latest monthly report, the IEA stated that the re-ramping up of US shale production will make OPEC "not quite so happy" in 2018. The agency sees an increase of 1.6 million barrels per day in 2018 by non-OPEC nations, completely undermining the organization's plan to raise oil prices by cutting their members' production levels. This follows their failed attempt to push US shale producers to the brink of extinction by increasing production in 2016. Sweet revenge. For a taste of what hell OPEC put the US consumer through in the early 1970s, members can click the link to read the story of The First Great American Oil Crisis.
Growing US rig count is undermining OPEC's production cuts
(11 Dec 2017) The US oil rig count has more than doubled since the middle of last year, and that is putting a clamp on OPEC's efforts to keep the price of crude artificially high. In the summer of 2016, the US rig count fell to just over 300; as of the end of last week, that number rose to 751 and will continue to grow. With the rig count, US oil production continues to hit new all-time highs—the current rate of US production is 9.72 million barrels per day. West Texas Intermediate (WTI) crude futures fell to 57.10 on the rig count update.
(11 Dec 2017) The US oil rig count has more than doubled since the middle of last year, and that is putting a clamp on OPEC's efforts to keep the price of crude artificially high. In the summer of 2016, the US rig count fell to just over 300; as of the end of last week, that number rose to 751 and will continue to grow. With the rig count, US oil production continues to hit new all-time highs—the current rate of US production is 9.72 million barrels per day. West Texas Intermediate (WTI) crude futures fell to 57.10 on the rig count update.
We are getting close to dusting off our short oil ETFs
(22 Nov 2017) By all rights, oil should be hovering around $45-$50 per barrel right now. Instead, thanks in part to the recent Keystone Pipeline disruption, crude settled out the day at a two-year high of $58 per barrel. That belies logic. The US is producing a record $9.62 million barrels per day, and world demand is nowhere near a peak. Despite the upcoming OPEC meeting on 30 Nov, at which time the cartel is expected to extend its production restrictions, look for oil to peak around $60 before heading back down. We use the United States Short Oil Fund, symbol DNO, or the ProShares UltraShort, symbol DUG, to play an expected drop in prices, and we are close to adding one of them back into the Penn Intrepid Trading Platform.
(22 Nov 2017) By all rights, oil should be hovering around $45-$50 per barrel right now. Instead, thanks in part to the recent Keystone Pipeline disruption, crude settled out the day at a two-year high of $58 per barrel. That belies logic. The US is producing a record $9.62 million barrels per day, and world demand is nowhere near a peak. Despite the upcoming OPEC meeting on 30 Nov, at which time the cartel is expected to extend its production restrictions, look for oil to peak around $60 before heading back down. We use the United States Short Oil Fund, symbol DNO, or the ProShares UltraShort, symbol DUG, to play an expected drop in prices, and we are close to adding one of them back into the Penn Intrepid Trading Platform.
US crude production, oil exports, hit record highs as oil nears $60 per barrel
(09 Nov 2017) Did OPEC really think they could crush US shale producers with their production cut? As oil nears $60 per barrel, US shale producers kicked back into gear, helping the country produce a record high 9.62 million barrels per day for the week ended 03 November. Furthermore, the government's decision to actually allow oil exports to take place is having a positive impact on the American economy—US exports of crude also hit a new high of 2 million barrels per day. (See chart in The Penn Wealth Report.)
(09 Nov 2017) Did OPEC really think they could crush US shale producers with their production cut? As oil nears $60 per barrel, US shale producers kicked back into gear, helping the country produce a record high 9.62 million barrels per day for the week ended 03 November. Furthermore, the government's decision to actually allow oil exports to take place is having a positive impact on the American economy—US exports of crude also hit a new high of 2 million barrels per day. (See chart in The Penn Wealth Report.)
Global growth, OPEC cuts push oil prices to their highest level since summer of '15
(03 Nov 2017) It seems like just yesterday we were filling our tanks up with $2 per gallon gas, with promises of prices at the pump going even lower. Now, with global growth ramping up quicker than anyone expected, and OPEC's production cuts actually holding, US crude futures are suddenly at a two-year high of more than $54 per gallon. The national average for a gallon of gasoline has spiked from $1.83 in February of 2016 to $2.60 today. OPEC members are rubbing their greedy little hands together, believing they are once again in the driver's seat, but their hopes will be dashed by something they refuse to recognize. American shale drillers are not dead, they are simply waiting for prices to go a bit higher before tapping the enormous number of wells they have sitting idle. If oil gets closer to $60 per barrel, those wells come online and OPEC gets a nasty surprise.
(03 Nov 2017) It seems like just yesterday we were filling our tanks up with $2 per gallon gas, with promises of prices at the pump going even lower. Now, with global growth ramping up quicker than anyone expected, and OPEC's production cuts actually holding, US crude futures are suddenly at a two-year high of more than $54 per gallon. The national average for a gallon of gasoline has spiked from $1.83 in February of 2016 to $2.60 today. OPEC members are rubbing their greedy little hands together, believing they are once again in the driver's seat, but their hopes will be dashed by something they refuse to recognize. American shale drillers are not dead, they are simply waiting for prices to go a bit higher before tapping the enormous number of wells they have sitting idle. If oil gets closer to $60 per barrel, those wells come online and OPEC gets a nasty surprise.
UPDATE: Boy, was Kilduff ever wrong. Oil went in precisely the opposite direction since this was written. (20 Jun 2017) Will oil drop below $40 per barrel? The financial press is lazily reactive on most topics. Take oil prices. When crude was in the low-$50s and climbing just a few short months ago, all the talk was of $60 per barrel oil. Now that prices have plummeted down to the $43 range, the "experts" are looking for oil in the $30s. An expert we do listen to with respect to the commodity is John Kilduff. That's why we took notice today when he made a confident prediction that crude will soon break below $40 per barrel. If that happens, we will probably add our old friend OIL ($5-$5-$7) back into the Intrepid Trading Platform and wait for the near-certain profit.
(29 Mar 2017) Don't look now, but the US is suddenly exporting oil. Last week, the United States did something which would have seemed unfathomable just a generation ago: we exported over 1 million barrels per day of crude oil. As the US energy renaissance continues, despite OPEC's effort to destroy the movement by driving down prices, we continue to erode that organization's power in the world. US refineries are also ramping up production, supplying 9.5 million barrels of gasoline per day last week, up from 9.2 million in the previous week. Not bad, considering we haven't built a new refinery in this country in thirty years.
(2016.12.27) China another reason oil won't go much higher in near term. With crude oil futures sitting around $55 per share, we believe it is a sucker's bet to get bullish on the commodity right now. While the US economy continues to improve and OPEC just capped production, the instinct is to expect higher prices. China, however, has been taking advantage of low prices by stockpiling crude in newly-built storage facilities for its "teapot refineries"—small, privately-owned companies now sanctioned by the communist state. As oil prices rise, the strategic buying will abate, thus reducing demand (and prices).
Who will Blink First and Cut Oil Production to Force Prices Back Up?
(01 Sep 15) The US energy renaissance was something few people saw coming. In the Middle East it was discounted, belittled, and impugned. But the US got the last laugh, as American ingenuity brought forth a literal flood of new oil and gas onto the world scene. Last November, the wizards of oil at OPEC tried to strangle American producers by refusing to cut production. That backfired like a cheap Russian missile, and oil plummeted 50% as US companies simply improved their efficiency.
Now that our enemies around the world are feeling real pain, they have decided to “negotiate” the lowering of production levels. OPEC has signaled they are ready to stand by their friends (read: fellow thugs and terrorist states) and begin real talks on cutting production. There is just one problem: every member-state is expecting the cutbacks to start elsewhere.
Think about it. Russia is in dire straits, considering its export base is overwhelmingly fuel-centric. If Putin orders less crude be taken out of the ground and the ocean floor, he has even fewer sickly rubles to re-build his Russian empire. Then there is fellow emerging market (that term has become a joke) Venezuela. A buffoonish Nicolas Maduro is driving the economy into the ground, irrespective of the price of oil. His ruthless regime, like Putin’s, cannot afford to bear the brunt. They point the finger back at the “wealthy” Saudis.
Then there is Iran. The rotten nuclear deal the US agreed to with the mullahs means that they can start selling oil on the open market. (Ironically, they cannot use much of their own oil, as they have little refining capability.) It’s hard to convince someone frothing at the mouth to sell their oil to also be the ones to fall on their sword.
One common thread for the OPEC cabal is their general dislike for America and their hatred for our current drilling capabilities. But will that be enough for them to put aside their own differences and foist higher crude prices on the world? Perhaps. The day the news was leaked, oil futures shot up 9%.
(Reprinted from the Journal of Wealth & Success, Vol. 3, Issue 35. Not a member? Click Here.)
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Crude’s Rebound was Short-Lived, Finishes at $45 per Barrel.
(Sa, 14 Mar 15) With a rally lasting just long enough to fool the capricious press and Goldman Sachs analysts, oil reversed back down this week and hit a new recent low of $45 per barrel. OPEC issued a report essentially blaming US frackers, which is great—it gives them a taste of the medicine they have been force-feeding the rest of the world for nearly two generations.
Interestingly, the rapid drop in oil prices and the rapid rise in the strength of the dollar have been made the scapegoat for recent market weakness. When the Fed finally takes responsible action and raises interest rates, you can bet that the market will throw another tantrum. That is looking less and less likely this summer, and we stand by our December prediction.
Should you begin buying energy names with crude at $45? Well, the geniuses at Goldman Sachs (who told us last year that oil was going to $200 per barrel soon) are now telling us that $20 per barrel is possible. No, it really isn’t. Once again, they have joined the herd mentality. That being said, a number of energy companies are now being forced to layoff workers and liquidate assets. Some will not live to see $80 per barrel again, let alone Goldman’s $200. But if you stick to efficiently run integrated oil companies, and the strongest drillers, now should be a great time to take a position.
We just picked up a major integrated oil company in the Penn Global Leader’s Club, and imagine that we will look back in a few years and be very pleased with that decision. When the Goldman lemmings are going in one direction, it often pays to make a 180° turn. Analysts wish to keep their jobs and their guest spots on CNBC—take advantage of their arrogance.