What Every Oil Investor Needs to Watch Right Now: Part 1
The hype is real.
If I had told you a year ago that oil prices would be knocking on the $70-per-barrel threshold, there’s a good chance a few of you would’ve laughed me right out of the room.
At the time, WTI crude was trading well under $40 per barrel, we were all settling in for a long COVID-19 lockdown, and an oil driller’s worst nightmare was coming true — storage was getting very, very tight.
When prices turned negative, any skepticism over a barrel of oil trading above $70 would’ve been immensely justified.
We called it "The Great Oil Reset."
Our oil consumption had been growing for decades, slowly but surely. Then U.S. demand crashed within a few weeks after locking everything down.
To put a little perspective on this, the U.S. consumed 21.5 million barrels of petroleum products during the week of March 13, 2020. Just one month later, our consumption levels had plummeted roughly 35% to under 14 million barrels per day.
That day, I told you we should be taking full advantage of this reset.
Those of you who agreed and saw that opportunity have made an absolute killing in the oil sector over the last eight months.
If you did, you’ve probably asked yourself what’s next for crude prices.
Like I said, the hype is real.
Even Goldman Sachs sees a run to $75 per barrel in the third quarter.
I think oil prices can go much higher than that.
What You Need to Watch Now for Oil Profits Later
For the veteran members of our investment community here at Energy and Capital, these oil catalysts certainly won’t come as a surprise.
After all, we’ve been waiting for these catalysts to trigger higher oil prices for months, haven’t we? Once oil prices effectively reset last summer, it was only a matter of time before prices headed north again.
It’s with this bullish thought in mind that we’re going to examine the catalysts you need to watch now to profit from oil stocks later.
Up first is the growth in North America’s tight oil output.
The reason why is simple: U.S. tight oil production has accounted for the greatest growth in global supply for more than a decade!
Our analysts have traveled the world over, dedicated to finding the best and most profitable investments in the global energy markets. All you have to do to join our Energy and Capital investment community is sign up for the daily newsletter below.
For this, we’ll need to keep a keen eye on our drilling activity.
At the risk of sounding like a broken record, keep in mind that U.S. drilling activity has declined dramatically over the past several years. There were more than 800 rigs drilling for crude oil around this time in 2019.
Last August, that number bottomed out around 172 rigs.
Since then, higher crude prices have led companies to kick-start drilling activity, with roughly 318 rigs in the field as you read this.
And yet it’s critical for you to recognize that this isn’t nearly enough.
We all know that exploration is the key driver for future oil output.
It makes sense, doesn’t it? If you aren’t constantly drilling for new oil, the naturally steep decline rates from tight oil wells will have a catastrophic effect on supply further down the road.
The problem is that drillers radically cut spending during the COVID lockdowns in response to lower supply.
But we’re quickly moving into a post-COVID world, and you can bet that demand will not only recover from prepandemic levels but continue to push higher for at least the next two decades.
There’s a slight issue here.
You see, drillers around the world aren’t finding oil nearly as much as they used to. Rystad Energy reported late last year that the exploration success ratio dropped precipitously over the last 10 years, from 72% in 2010 to 17% in 2020.
Simply put, drillers haven’t been finding as much oil from now-mature fields. As companies expanded past the sweet spots, it’s become increasingly difficult to reach those easy-to-get barrels.
In order to tap those out-of-reach resources, prices need to rise.
However, the U.S. tight oil sector is just one part of the equation.
Next week, we’ll talk about another catalyst that could prove even more pivotal for higher oil prices in the second half of 2021.
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.
Energy Demand will Increase 58% Over the Next 25 Years
After getting your report, you’ll begin receiving the Energy and Capital e-Letter, delivered to your inbox daily.