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Bottom of the Barrel: You May Not Like What’s Next for Oil

Written by Keith Kohl
Posted February 19, 2020

Whom do you trust?

Think carefully because one very important part of your portfolio depends on how you answer that question.

With news of the coronavirus flooding through every conceivable media stream, it’s impressive to see how wildly different the takes have been on its fallout.

Panic within the oil markets has been palpable for weeks. Oil prices recently careened under $50 per barrel after breaking above $65 per barrel less than a month ago.

But is the worst over? Is the coronavirus outbreak properly priced right now?

That’s the sentiment heading into trading this morning.

Again, it’s all about whom you trust.

Let’s be honest here, everyone is slashing their demand forecasts.

The IEA cut its outlook this year by 365,000 bbls/d, with demand taking a huge hit of 435,000 bbls/d during the first quarter alone.

Meanwhile, the Energy Information Administration is seeing a similar effect from the coronavirus and cut its demand forecast by 378,000 bbls/d.

Those two forecasts are far more pessimistic than OPEC+.

OPEC+ revised its oil demand forecast this year by just 230,000 bbls/d, suggesting that global demand will only grow around one million barrels per day in 2020.

Also, note that this is the first time in over a decade that global oil demand has contracted during the first quarter.

All this time, the Chinese government is screaming, “Remain calm! All is well!” as it locks down entire cities and cracks down on any journalist willing to put boots on the ground.

The world’s second largest economy is coming to a screeching halt:

china gdp

Things are about to be worse over the short term for oil.

And here’s why you should be glad to see it.

Bottom of the Barrel Profits

So how bad have things gotten?

Few outlets will report on the total cases, with most preferring to say how many new cases have been confirmed.

At last count, there have been a reported 73,332 total cases across 29 countries.

The death toll is around 2,000.

I just mentioned, however, that sentiment by the herd remains mostly bullish, which has helped crude prices rally more than 5% over the last week.

The real question is how OPEC+ will respond.

Its decision is going to tell you all you need to know about the situation.

The optimism that an emergency meeting to cut output by another 600,000 barrels per day (recommended by an OPEC+ committee) is fading fast.

Russia is holding out.

We’ll find out shortly, and the ultimate result could send crude screaming back under $50 per barrel.

So why should you be happy about it?

Well, it’s because when oil does hit rock bottom, there’s only one direction to go.

And by then, the blood that has been spilling freely into the streets gives us an advantage.

After all, buying high and selling low isn’t the name of the game.

Last week, I told you to keep an eye out for those hidden gems that will still be drilling at a profit despite the low oil price environment.

They may be easier to find than you first think, considering the haircut that E&P companies have taken over the coronavirus outbreak.

Today, we’re edging closer to the bottom for oil. When it does, that window of opportunity won’t stay open for long.

Whatever you do, don’t miss your chance to strike.

Until next time,

Keith Kohl Signature

Keith Kohl

follow basic@KeithKohl1 on Twitter

A true insider in the energy markets, Keith is one of few financial reporters to have visited the Alberta oil sands. His research has helped thousands of investors capitalize from the rapidly changing face of energy. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital as well as Investment Director of Angel Publishing's Energy Investor. For years, Keith has been providing in-depth coverage of the Bakken, the Haynesville Shale, and the Marcellus natural gas formations — all ahead of the mainstream media. For more on Keith, go to his editor's page.

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