Is It Time to Buy Oil?
Is it the end of oil?
It’s about time, isn’t it?
Watching WTI prices fall below $50 per barrel for the first time in over a year, even the best of us can get that bearish twinge of concern.
But this isn’t 2014.
You probably remember that painful crash just as much as I do. Prices collapsed nearly 75%, from over $100 per barrel all the way down to around $26 per barrel.
All it took was a global pandemic… that’s not quite a pandemic just yet.
Oil prices have dropped roughly 20% over the last two weeks as the situation gets worse.
This is the black swan event nobody saw coming.
Although the World Health Organization insisted that it’s not a global pandemic, the damage has been done.
A few days ago, predictions were running wild over how it would affect China’s oil demand, with some reports saying it has fallen roughly 20% from the coronavirus. That comes out to around 3 million barrels per day lost from the second largest oil consumer on the planet.
Oddly, the more bearish the media gets these days, the more bullish I become.
So should you, and here’s why...
Bear Hunting in Winter
The first thing to expect was OPEC+ to take action.
The oil cartel and Russia announced yesterday that they were considering an emergency production cut to bolster prices. As it stands now, they’ve taken nearly 2 million barrels per day of output off the table.
Today, they’re eyeing cutting another half-million barrels per day — maybe more.
Even Iran is in agreement, which speaks volumes for the seriousness of the situation.
That news was good enough to rebound crude oil prices back to over $50 per barrel. Prices jumped another 3% this morning on rumors that a new drug was being developed.
However, there’s another reason oil is a screaming buy at $50 per barrel.
It should be clear that the market has lost its taste for geopolitical volatility.
Think about it.
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Since last fall, we’ve seen a drone attack that briefly knocked out half of Saudi output literally overnight.
The market took it all in stride, and crude didn’t even top $60 per barrel.
When the U.S. embassy in Iraq was torched, oil climbed to $65 per barrel for the briefest of moments.
You know just as well as I do that if these events occurred 10 years ago, oil would’ve shot to the moon — far higher than the $150 per barrel it reached during the summer of 2008.
Well, there’s one serious difference between then and now — approximately 9 million barrels of tight oil!
So what do you do?
That one’s easy: just beat the smart money to the punch.
The Bottom in Oil Is Near
I’ll tell you something that would be far more bullish for oil prices than anything that OPEC+ can do right now.
I mentioned before that the one major issue investors are refusing to accept is that production in the Permian Basin is slowing down.
To put a little perspective on how vital West Texas output is for the U.S., just consider that nearly four out of every 10 barrels of oil extracted in the United States comes from the Permian Basin.
The EIA expects Permian output to average 5.2 million barrels per day this year, which is only a growth of 800,000 barrels per day compared to 2019.
Analysts project that growth will be cut in half next year.
Things will turn out worse if this low-price environment persists, too.
You see, we’re at the low end of the shale band right now — the range in which shale drillers are profitable.
We’ve profited on previous opportunities in the shale band before, and being so near a bottom in oil now means that new opportunities are popping up all over the place.
Next week, I’ll show you how the shale band is revealing several screaming buys in the sector.
Until next time,
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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