Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

A Key Oil Price Trend That Everyone Is Missing

Commodities / Crude Oil Oct 06, 2015 - 05:53 PM GMT

By: Investment_U

Commodities

David Fessler writes: My friend Rick Rule likes to say, “The cure for low prices is low prices.”

Here’s what’s supposed to happen...

Marginal producers can’t make money at today’s prices. Therefore they shut in wells (turn them off). As supplies get tighter, prices move higher.


But that hasn’t happened. Prices and drilling activity have both continued to move lower... until now.

U.S. crude futures got a major boost on Friday, closing almost 2% higher than where they stood when the market opened. Meanwhile, the number of oil rigs has continued to slip, narrowing our domestic supply-demand gap.

Back in February, I spoke about the future course of oil prices with John Hofmeister. (You can listen to the interview by clicking here or on the image below.)

David Fessler Interviews Jon Hofmeister former President of Shell Oil video link

John is the former president of Shell Oil. It was his prediction that WTI production would begin to tail off during Q3 2015. Then, starting slowly at first, it would accelerate.

The reason? Well depletion rates would begin to reduce production as the number of wells coming online decreased.

Eight months later, it’s happening. Right on cue.

Once again, allow me to refer you to my favorite chart...

Crude Spot Price verses Production July to Present chart

As you can see, WTI crude production fell by 40,000 barrels per day the week of September 25, 2015. That’s a level not seen since November 2014.

And note that the above graph does not show the rise in the price of WTI crude (the data is a week old). But as of Monday’s close, crude was $46.26 per barrel - up more than 1.5% since Friday.

It looks as though prices might just be starting to respond to lower production numbers.

Rig counts have been dropping, too. Last week’s count, according to Baker Hughes (NYSE: BHI), dropped by 26 to 614. That was the fifth straight weekly drop - and the sharpest since late April 2015.

U.S. oil rigs are now at their lowest since August 2010. Last October, they peaked at 1,609. Which means there are almost 1,000 fewer rigs drilling today than a year ago.

It took a while, but U.S. production is finally starting to slow.

And, at the same time, oil prices are starting to rise.

So is John’s prediction finally becoming a reality? Is supply and demand really starting to equalize domestically? The chart above surely supports his thesis.

The important takeaway here? Industry analysts... the mainstream media... and even the dozens of oil and gas industry rags I scan daily... they almost never mention production.

Instead, they’re fascinated with oil storage numbers. The amount of oil in storage is important for short-term commodity traders, sure. But it has almost no bearing on long-term crude prices. Other indicators - like dwindling production - suggest we are at or near a bottom in U.S. WTI pricing.

And with mergers and acquisitions activity on the upswing - marginal players are throwing in the towel and teaming up with stronger ones - now is the perfect time to go bargain hunting.

I’m looking at strong exploration and production companies as well as midstream pipeline master limited partnerships.

All the signs point to a continued drop in U.S. unconventional crude production. This can’t help but lead to higher crude prices and, more importantly, higher share prices for those with the patience to wait.

Good investing,

Dave

Source: http://www.investmentu.com/article/detail/47877/key-oil-stat-everyone-is-missing#.VhQXjk3bK0k

http://www.investmentu.com

Copyright © 1999 - 2015 by The Oxford Club, L.L.C All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Investment U, Attn: Member Services , 105 West Monument Street, Baltimore, MD 21201 Email: CustomerService@InvestmentU.com

Disclaimer: Investment U Disclaimer: Nothing published by Investment U should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in