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Oil's Big Year Hasn't Even Started

Written by Keith Kohl
Posted July 24, 2018 at 8:00PM

Oil has had one helluva good run over the last 12 months.

Since last July, the cost for a barrel Texas Tea has marched more than 42% higher.

But we knew 2018 was going to be a good year, didn’t we? To be fair, we talked all about the bullish catalysts that were in the pipeline in an oil outlook I penned last September.

It was clear to us that the fundamentals were strengthening and the imbalance was working itself out.

At the time, the EIA had forecast that WTI prices would rise slightly, averaging $49.58 per barrel.

Keep that in the back of your mind as WTI crude looks for its next run to $75 per barrel.

Then again, EIA forecasts were made to be revised.

Today, the EIA’s latest Short-Term Energy Outlook projects that WTI prices will average $65.95 per barrel in 2019, then decline slightly from that price level next year.

Before we start delving into next year’s forecast, however, it’s worth looking at why the second half of 2018 could be very bullish for oil.

2018: Year of the Oil Bull

Scouring the headlines today, there’s no question that you’ll find a myriad of reasons oil prices are gearing up for a good run.

Perhaps it was the latest presidential caps-lock tirade against Iran. While I’m not buying into the idea that this tweet will spark the Armageddon that the mainstream media believes, it does tell us something important.

Twitter won’t drive oil prices higher.

Sanctions will.

More importantly, it should be clearer than ever that Trump is going to stick to a zero-tolerance policy when it comes to them.

And THAT, dear reader, is something we can count on.

Just a few days ago, Japan oil refiners reported that they will stop loading Iranian crude by mid-September.

By mid-October, those shipments will make port, and Japan will have another source of crude oil lined up.

Right now, the consensus is that about one million barrels per day will be disrupted when these sanctions take effect.

That’s in addition to the declining crude output in Venezuela, which currently stands around 1.3 million barrels per day.

It kinda makes the production increases by OPEC and Russia seem insignificant.

What it also does is prop the door open for U.S. crude.

And how valuable has this been for investors like us?

Well, let’s just say it’s been worth it so far...

End-of-Year Profits

If we learned anything over the last few weeks, it’s that all it takes is a little due diligence to find success in the oil market.

Five days ago, shares of Hi-Crush Partners (NYSE: HCLP) exploded 27% higher as it announced both an acquisition and an increase to its quarterly distributions.

Yet there’s something that portends even more profits ahead. Hi-Crush’s earnings are projected to absolutely skyrocket this year as more drilling rigs are deployed into the field.

There were 1,046 rigs presently running in the United States.

That’s nearly a hundred more than there were a year ago.

And roughly half of them are drilling into Texas soil.

But let’s put just a little bit more perspective on how critical Texas crude is to our domestic supply.

The Permian Basin ALONE represents almost one-third of total U.S. output.

The Eagle Ford area accounts for another 12% of our daily production.

That’s roughly 4.8 million barrels of crude oil per day from just two of our best oil-producing regions.

Now consider something else...

The entire United States only produced an average of 4.9 million barrels per day during September of 2007.

With sanctions looming in the fall and a hard-lined approach to Iran all but assured from Trump, is there even a question at this point who’s going to come out of top at the end of 2018?

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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