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When Crude Reality Sinks In, Here’s What I’m Buying

Written by Keith Kohl
Posted August 22, 2018

A historic event took place a few months ago... and everyone missed it.

I can’t say I blame them. It’s easy to miss something in the clickbait headlines that clog up our screens today.

To be fair, this event was inevitable, and we’ve been waiting for it to happen for a full decade.

So what happened?

Back in April, the port district of Houston-Galveston (which includes ports in Houston, Galveston, and Corpus Christi, to name a few) started exporting more oil that it imported. As you know, Congress lifted the 40-year ban on exporting crude oil three years ago.

I told you before that it was only a matter of time before U.S. drillers capitalized on global buyers.

Now that time has come.

The Golden Triangle

More than 2 million barrels per day of U.S. crude is now flowing to international destinations, with more than 25% of those exports heading straight to China.

But there’s another reason to be bullish...

Known as the “Golden Triangle,” the area in southeast Texas is ground zero for U.S. oil exports.

According to the EIA, the port district of Houston-Galveston was responsible for 70% of our exported oil volumes last May.

Take a look at this historic moment for yourself:

I once told you that when the export ban was lifted in 2015, the sky was the limit for drillers.

Access to international customers was a massive win for U.S. oil drillers... or was it?

We’re Going Deeper

Look, I can understand why there’s a sense that this shale boom is unstoppable.

Over the last 20 years, we’ve seen two brutal oil price crashes, and anyone with skin in the game during either of those periods was painfully stung.

During the second half of 2008, WTI prices plummeted an eye-popping 70%, and it took roughly two years for prices to top $100 per barrel again. Then in 2014, we saw prices crash again as the Saudis ignited a price war that caused crude to fall another 70%.

Yet there was one constant throughout it all: production surged higher in the Lower 48.

Today, we’re producing nearly 11 million barrels per day. Back in 2008, our oil production averaged less than 5 million barrels per day.

In case you’re keeping track, that’s the lowest it’s been since 1946.

But the shale boom did more than simply double U.S. crude output; it also helped mask declines virtually everywhere else. We talked about this last week, didn’t we? After all, oil production in both California and Alaska has been steadily declining since the 1980s!

It’s clear that the powerhouse producer in the United States has been — and always will be — Texas. I’ve told you before that two plays, the Permian Basin and Eagle Ford, account for over 40% of our domestic oil production.

More importantly, they’re perfectly positioned to take advantage of booming exports out of the Gulf of Mexico.

But are there better buys out there than these Texas drillers?

Enterprise Products (NYSE: EPD) plans on taking U.S. exports to the next level. The partnership is in the process of putting a new terminal off the Texas coast.

Once completed, the terminal will include an 80-mile-long pipeline that will allow them to load Very Large Crude Carrier (VLCC) tankers at a rate of 85,000 barrels per hour.

It wouldn’t be a first for them, either.

Enterprise recently loaded up the first VLCC on record to dock at its Texas City terminal. Before this supertanker reached port, it was the largest of its kind to navigate the Houston Ship Channel.

Trust me, there’ll be plenty of the black gold to go around, with U.S. production expected to top 12 million barrels per day in 2020.

With the right infrastructure in place, I think we’ll reach that mark sooner than you think.

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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