Crude Spring-Loaded for Takeoff: 19% Year-Over-Year Growth Not Out of the Question
Not long ago, the U.S. oil industry was suffering through some very dark days.
Bankruptcies were rampant in the oil field. Hundreds of billions of projects around the world were shelved – some permanently.
Despite a rebound in 2016 from more than a decade of lows, scars of the collapse are still visible.
For instance, I can’t name an offshore drilling project worth targeting. Or even any new ones underway off the top of my head.
The costs and risks are too high… especially if another collapse takes place.
We’re now in our second year of recovery. But investors are still skeptical.
I’ve had to defend myself on my prediction that U.S. crude would hit $75 per barrel this year…
But I think crude could hit $100 oil much sooner than most investors think it will…
Just a handful of years ago, if I had called for $200 per barrel crude, no one would have batted an eye.
But today, my call for crude’s price to rise less than 20% from where it’s currently trading seems overly euphoric… which strikes me as a little bizarre.
But the oil bull is far from dead.
During the second half of 2017, we watched the price of U.S. crude slingshot higher…
From its low of $42.08 per barrel on June 19, crude gained more than 58% to its peak of $66.63 on January 22.
And today, we’re about 5% below that high.
When Fire and Hurricanes Collide
Crude benefited from spectacular tailwinds in the second half of 2017. Some of them were natural. Some were manmade.
In July 2017, Royal Dutch Shell’s (NYSE: RDS.A) Pernis refinery in the Netherlands suffered a cataclysmic fire. It’s Europe’s largest refinery, and it went dark.
To make up for it, Europe’s imports of diesel hit a record high in August. In turn, U.S. exports also hit a record high.
That same month, Hurricane Harvey tore through the Gulf of Mexico, including Texas’ refining hub… Dozens of U.S. refineries went offline.
Then came hurricanes Irma and Maria.
And to top it all off, a horrific earthquake rattled Mexico.
Prior to all of this, there was already a global inventory drawdown underway. OPEC and its allies had been battling the world’s oil glut by cutting back production.
This was accelerated with the Pernis refinery fire and the dramatic hurricane season in the U.S.
Europe had to turn to Latin America and Asia to meet its own demand, which depleted their inventory buildups and siphoned away even more from the global glut.
The New Oil Leader
Historically, the U.S. has dominated energy consumption. But suddenly, we are in an unfamiliar situation…
We started exporting liquefied natural gas. And then crude too after the export ban was lifted in 2015.
Our crude imports have declined, and we’re becoming a net exporter. We are on our way to becoming completely energy independent.
But America’s new energy potential doesn’t stop there…
Thanks to slowed production from OPEC and Russia, the U.S. is poised to dominate global oil supply.
Over the next five years, U.S. shale production will meet 80% of global demand growth.
During that span, production from the Permian Basin is projected to double. U.S. crude production will tip past 12 million barrels per day (bpd) by then.
And hardly a drop will be wasted…
Back in 2007, spare production capacity hit a new low. And in June 2008, the price of crude set a record high of nearly $160 per barrel.
By 2023, spare production capacity is expected to fall to its lowest levels since 2007.
That could send crude prices soaring.
Over the next five years, global oil demand – led by China – will chug higher. By 2023, worldwide consumption of crude is expected to top 104 million bpd.
Just as we’ve seen over the last six months, crude prices are set to become more upwardly volatile. We can expect big, sudden moves higher.
A 19% increase in crude a year from now isn’t out of the question. And when you look further out, $100 crude seems reasonable as the supply-demand picture tightens.
Through all of this, OPEC’s stranglehold on the global oil market will weaken…
Best of all, it appears American producers will gain the upper hand.