The 2018 oil rally is happening at breakneck speed.
As I write this, West Texas Intermediate (WTI) is above $66 a barrel, while Brent crude is breaching $71 a barrel for the first time since December 2014.
That means, as of Wednesday's close, WTI has risen 12.2% for the month; Brent 8.1%.
Now, I've written about the narrowing of the global crude oil balance for some time.
But it's looking more and more like that balance is arriving quicker than anticipated.
And this is what it'll mean for oil prices...
As of yesterday morning, crude oil prices were holding tight near a two-year high. Despite the misgivings of short-sellers who use falling oil as a means to make money, the global market has finally stabilized.
As I write this, WTI (West Texas Intermediate) was at $57.33 a barrel, nicely above the upper limit of the end-of-year $55 to $57 range I forecast last month. The consensus indicates our next resistance level is around $60.
Meanwhile, London-set Brent is trading at $63.97, convincingly higher than my Dec. 31 range of $58 to $60 a barrel.
This adds up to one fact…
We're now in the perfect environment to make some nice money with the presence of two crucial ingredients: a degree of predictability and low volatility.
After over 40 years in the energy business, more than two decades of that with a parallel career in intelligence, I regularly witness the impact of global developments on the energy markets.
So it's hardly surprising that I often address geopolitical events here in Money Morning and Oil & Energy Investor.
Currently, situations in Latin America (Venezuela), Asia (the South China Sea crisis), and Africa (ongoing civil conflict in Libya and Nigeria) show how widespread the geopolitical impact is on energy prices and availability.
Each one either is, or could easily, spike oil price volatility.
But the instability in a different region remains the biggest single factor in how the two sectors interact: the Middle East.
There, two significant events unfolded over the past week. Each is certain to have an impact on how crude oil trades in the near term.
The curious decertification of JCPOA (the Joint Comprehensive Plan of Action, more popularly known as the "Iranian nuclear accord") by President Trump was followed in short order by the ominous hostilities between Iraq and Kurdistan over the status of the city and region of Kirkuk.
Both impact the northern Persian Gulf, already a region with a short fuse.
The toppling of Raqqa, the self-styled ISIS capital, may be underway in Syria, but the ongoing cross-border disagreements have already spread elsewhere.
And they could set the whole region on fire...
With all the issues Europe faces today – Brexit, debt problems, political discord – spending the week in Milan was definitely an interesting experience for Marina and me. But out of all those issues, my contacts were concerned about one thing above all else.
I'm talking about Washington's pending action on the Iranian nuclear accord...
The White House recently slapped new sanctions on Venezuelan officials, banning them from entering the United States.
That follows past, more general sanctions…
As well as rumors that, if true, could end up completely collapsing the South American country – sanctions on Venezuela's national oil company, PDVSA.
See, Venezuela is now on the brink of total collapse, and PDVSA looms large in this unfolding crisis.
The focus is the company's ability to pay its bond interest. Doing so is crucial, but prospects are grim.
Along with that goes the ability of the central government to administer an entire population and avoid the country descending into outright civil war.
And that's pushing the Venezuelan government right into Russian and Chinese hands.
As you know, everything is bigger in Texas – ranches, oil fortunes, trucks, you name it.
But there's a certain court case that's getting to be a really big thing… even by Texan standards.
Last week in San Antonio, Texas State Sen. Carlos Uresti testified in a bankruptcy hearing. The process follows from the 2015 insolvency of FourWinds Logistics.
The company's former CEO, a consultant to management, and Uresti himself have been charged in a separate criminal case alleging investor fraud.
For his part, the senator has been indicted by a federal grand jury in San Antonio on no less than 11 counts, including wire fraud, money laundering, securities fraud, and engagement in monetary transactions with property from specified unlawful activity.
If found guilty on all 11 counts, he could get some 200 years in prison. Unlike most of the company folks, he has entered a "not guilty" plea.
Uresti worked as an advisor to FourWinds. According to the charges, his function was to attract investors in exchange for a share of the resulting proceeds.
That case is going to trial next month.
But in his testimony in the bankruptcy proceedings last Tuesday, Uresti acknowledged that FourWinds "might have been a Ponzi scheme."
Right, and Irma might have been a hurricane…
The thing is, this alleged Ponzi scheme operated right in the middle of the American "shale revolution."
And it could be happening again, right now...
Looking back, I had a rather brief childhood. I suppose that results from starting my first college degree (in theoretical physics) at 13.
But I had several loves during that period. One was baseball. In fact, I was rather good until meeting my first genuine slider – a violation of all the rules of nature I was studying at the time.
Another was science fiction and horror flicks.
I probably saw every low-budget release. And there is one thing I remember about a "forward-thinking" vampire (the Christopher Lee type).
They would consistently drain a victim but keep them alive. That would allow for a partial recovery and another meal later.
Much like the current state of the oil market…
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World stock markets were mostly higher overnight. Crude oil prices are firmer today, which helped out the equities. Also, Greece's creditors approved another release of bailout money for the indebted country, which assuaged European investors. U.S. stock indexes are pointed toward slightly higher openings when the New York day session begins.
Gold prices are modestly up in pre-U.S. market trading, on a technical and short-covering bounce from solid selling pressure seen earlier this week.
Late last week, crude oil prices took a nosedive. WTI (West Texas Intermediate, the benchmark crude rate for futures contracts in New York) declined 4.8% on Thursday, fueled by massive overnight (and overseas) sell-offs. That translated into a 7.7% dive for the week to date.
If there has ever been a better example of the tail wagging the dog, I haven't seen it.
As you've seen me say before, swings in oil prices often have less to do with market dynamics and more to do with paper traders – people trading futures, options, and other hedges. Of course, what does happen in the actual market may be the initial prompt for how such derivatives are played.
This time, however, we had an avalanche of events that magnified the impact.
Here's what happened - and where oil is heading next...
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(Kitco News) – World stock markets were mixed in lackluster overnight trading. Some disappointing corporate earnings reports limited the upside. U.S. stock indexes are pointed toward weaker openings when the New York day session begins. A big miss to the downside in Snap earnings is helping to pressure U.S. equities.
