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OPEC's Crude Flood

The "No Hope" Buy Signal

Written by Keith Kohl
Posted February 12, 2016

So 12 guys walk into a bar and ask the bartender for an oil cut...

Stop me if you've heard this one.

Okay, so maybe it wasn't exactly a bar — it was Vienna, and those dozen guys were actually representatives from various OPEC members, but you can sure as hell bet that Saudi Arabia was the one controlling the drinks.

At least, this has been the running joke for more than a year and a half

Last week, we talked about Venezuela and its oil minister's global tour to beg for production cuts from the world's largest oil suppliers, with stops from Iraq to Russia.

It should be clear by now that lobbying Saudi Arabia is a lost cause, especially when they're looking to steal your share of oil exports to heavy oil refineries along the U.S. Gulf of Mexico...

Or is it?

Perhaps all it takes is the support of another major Gulf producer?

OPEC's Oil Flood

Just one day after hitting a fresh 13-year low, crude prices are already on the rebound after rumors that OPEC members may finally be ready to cut output.

But are they really? Don't get your hopes up.

Iran, Iraq, Kuwait, Saudi Arabia, and the United Arab Emirates — OPEC's five largest producers — are running with the taps on full. These five countries account for more than 70% of the oil cartel's daily output.

Iran even wants to boost production by another half a million barrels per day, too!

Last month, the IEA reported that OPEC members increased output by nearly 300,000 barrels per day.

Well, so much for cutting output.

But is there some hope, at least?

On the one hand, OPEC members only have about 3 million barrels per day to go before they hit their production capacity of about 35.6 million barrels per day.

If you're thinking things can't possibly get any worse, you're not alone.

The "No Hope" Buy Signal

There are many, many popular signals out there for traders, from golden crosses to death crosses.

You may come across a few unusual ones, too... butter production in Bangladesh immediately comes to mind.

Another little-known one for your notebook is the "No Hope" signal. Although it's slightly less formal than your typical indicator, I have no doubt you've come across it before.

Truth is, you're witnessing it right now.

A step below the bottom... a rung under the bottom rung on the ladder, if you will.

And it's easy enough to learn about: it's when all hope has been drained from investors. That's it. No optimism. 

Come up with a new animal if you want, because your typical bear doesn't even come close to the negativity of the "No Hope" investor.

And that's the point, or very near, where the oil market finds itself right now. The world's largest oil producers are in a knockdown, drag-out, winner-take-all, two-men-enter–one-man-leaves, Thunderdome-esque war against each other.

Nobody is blinking, and everyone's out for (more) blood.

The Saudis want non-OPEC producers to slash production to preserve their market share. Venezuela wants the Saudis to cut output. The Russians dangle production cuts in front Saudi Arabia, then yank them away as Putin laughs all the way to economic collapse. It's a web of lies, deceit, posturing, and praying you're the last producer standing.

I can't exactly blame the market for abandoning all hope, given the fact that WTI prices have plummeted 75% over the last 19 months as the oil war rages on.

And yet, no matter how ugly things get, there's always a silver lining.

Even the most skeptical of you can't ignore one simple axiom: the boom-bust cycle of the oil industry.

And while you're waiting for the market to regain its hope for an oil recovery, it turns out that there are places to turn as oil desperately searches for a bottom.

I'll cover one of those investments next week.

Until next time,

Keith Kohl Signature

Keith Kohl

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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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