Crude Likely to Take Off

Matthew Carr By Matthew Carr
Emerging Trends Strategist

Oil & Gas

*Predictions are based on the analyses of the author. 

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, and investors are still skeptical.

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 prediction seems overly euphoric… which strikes me as a little bizarre.

But the oil bull is far from dead.

 

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 soared in August… as did U.S. exports.

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, according to Bloomberg Markets.

During that span, production from the Permian Basin is projected to double, according to Rigzone. U.S. crude production will tip past 12 million barrels per day (bpd) by then, according to Rigzone.

And hardly a drop will be wasted…

 

As the supply-demand picture tightens, $100 crude seems reasonable.*

Through all of this, OPEC’s stranglehold on the global oil market should weaken.

Best of all, it appears American producers will gain the upper hand.

Good investing,

Matthew