Saudi Arabia just experienced the biggest oil disruption on record.
In fact, an attack on its biggest facility has cut its production by 5.7 million barrels a day.
Here’s how it’ll impact the price of oil...
Only a day after markets cheered the U.S.-China trade truce, U.S. President Donald Trump threatened to slap $4 billion in tariffs on goods flowing out of the EU, causing oil prices to plunge this past Tuesday.
Since you can’t really trust the chatter about oil prices heading higher in the third quarter, Garrett’s going to show you how to make money on this trend…
As I write this, oil prices are retreating (again) and approaching two-month lows. This decline is underway despite some rather heavy supply pressures that should be moving it up.
Thus, the question is: Why?
The overall dynamics would seem to indicate higher prices:
Things like the reimposition of U.S. sanctions against Iran; a continuing collapse in Venezuela; widening impact from a festering civil war in Libya; a Russian export suspension mess on the world's largest pipeline remaining unresolved; an OPEC+ emphasis on production restraint; extraction problems in Mexico; and even discount pricing spreads in Canada have moved supply concerns to the front burner.
And that's just the warm-up.
Now, all this needs to be put in perspective...
The oil industry saw a brief rally this morning before tumbling down again. In fact, it
skyrocketed 2.6% before plummeting another 4%.
Here's why oil prices are so volatile today...
The price of crude oil is renewing an upward march.
I've said it before, and I'll say it again. It's quite the breath of fresh air after the collapse we experienced at the end of last year.
As of trading close yesterday (2:30 PM for oil in New York), West Texas Intermediate (WTI), the benchmark crude rate written in New York, was up another 1.6% for the day, 5.3% for the week, and 10.6% for the month.
Year to date (YTD), WTI is up a hefty 37.8%.
Meanwhile, Brent, the more widely used global benchmark set daily in London, is better by .5%, 2,4%, and 5.4%, respectively, with a YTD gain of 28.9%.
Of interest now is the Brent-WTI spread, the difference between the two benchmark figures...
The final quarter of 2018 has certainly been "historic." Then again, so was RMS Titanic's last night above water.
Both primary crude benchmarks posted highs on Oct. 3, but through close of trade on Dec. 27, they've been in marked retreat. West Texas Intermediate (WTI), the standard for futures contracts set in New York, has lost 41.6%, while Brent, the more widely used global yardstick set daily in London, has shed 39.8%.
Those figures even include a major single-session advance of 8% recorded on Dec. 26.
Of course, oil has been moving in tandem with a collapsing broader stock market. Weakness and volatility have been boosted by (largely misplaced) angst involving a credit inversion, where shorter-term maturities begin offering higher yields than paper further down on the curve.
A yield inversion is sometimes regarded as a precursor to a recession, although I also regard this fear as quite overblown.
Why? It's simple: The market has had more inversions not leading to recessions than it has had those resulting in one. Besides, in the unlikely event a recession hits this time around, it usually takes at least 18 months for any tangible indicators to form. Prior to that, it's all idle speculation, guesswork, and worry.
And as if to put a point on it, that worrisome inversion has quietly corrected over the past few weeks.
At the end of each year, there is a combination of loss-taking for tax purposes, institutional investors balancing and re-balancing portfolios, and lowered liquidity.
This is nothing new. This year, however, all three factors have collided in a profoundly uncertain environment fueled by a government shutdown, geopolitical tensions, concerns over U.S. foreign policy consistency, a U.S.-Chinese trade war, and highly suspicious computer-buying programs.
So it's easy to see why crude prices seem stuck in the basement - stock prices, too, for that matter.
How We've Been Profiting on Oil's Wild Moves
Crude's whipsaw "roller-coaster ride" won't last forever
By Dr. Kent Moors, Global Energy Strategist, Money Morning
Government shutdowns, geopolitical angst, protracted instability inside the Beltway, and outright market manipulation are combining to make this a profoundly volatile, unsettling time.
On Wednesday, for instance, both West Texas Intermediate (WTI), the benchmark crude rate set in New York, and Brent, the more widely used oil trading standard set in London, spiked ferociously - more than for any one session in well over a decade. WTI ended trading up by 8.7%; Brent by 8%.
With these spikes coming after historic price declines, everyone in the media is now looking for the oil price "floor" that can enable steadier upward moves.
I don't expect that floor to be a factor until into 2019. Year-end tax sales, low holiday volume, and institutional portfolio adjustments mean any floor, if it shows up, probably won't register until January.
And yet, these kinds of violent swings can be remarkably profitable. Late last week, my Energy Inner Circle readers following along got the chance to close out a 1,000% profit on a Brent "straddle" - a call and a put expiring on the same date at different strike prices - that saw us play the "up" and the "down."
They say all's fair in love and war.
I say all's fair in war and oil.
When it comes to digging for "black gold," any stretch of land, water, or ice is fair game.
You can go from the deserts of Saudi Arabia to the dry dust of West Texas to the waters of the coastline to find this vital fuel...
Not to mention the cold desert of the Arctic.
It's long been known that the Arctic holds oil frozen under its icy top layer, and getting to it is quite the challenge.
More so, even, than extracting oil out of the waters of the ocean.
The Arctic region encompasses 19 geological basins – only half of which have been actually explored.
In 2008, the United States Geological Survey estimated that there are 90 billion barrels of undiscovered, recoverable oil in 25 identified areas in the Arctic – 13% of all the undiscovered oil in the world.
Now, despite the challenges of the region, many nations around the world are determined to take control of this land and its abundant natural resources.
Which leads to some increasing tension, adding to the existing conflict I've discussed many times.
The Arctic situation has remained fairly stagnant for the last several years, at least compared to other areas of oil exploration.
But a move by one of America's energy rivals has brought it back onto the map of world tensions...
The collapse in oil prices has now reached historic levels.
Tuesday's 7% plunge in West Texas Intermediate (WTI) - the largest slump in more than 30 years of futures contracts - marked the 12th consecutive daily loss for the New York benchmark. Before rebounding slightly yesterday, crude had been down more than 22% in less than a month.
Now, we've spoken many times before about the numerous reasons why crude prices can plunge: artificial manipulation from short sellers and institutional monkeyshines, geopolitical tensions, distortions in supply and demand, even outright oversupply - we've seen it all before.
In this present case, some of this current decline is warranted, given the market's overestimation of Iranian sanction impacts and, to a far lesser extent, some weakening in underlying fundamentals.
But to be sure, the leading cause of the plunge has been a combination of what I have called the "lemming fixation" (a penchant for jumping off the cliff en masse) and some outright market manipulation.
I'll have more to say on this shortly, in a more extensive analysis my team and I are preparing right now.
With oil prices nearly 12% higher than they were a year ago, our Chris Johnson's Best in Breed system has identified a couple XOP components that will put money into you pocket...
Saudi Arabia isn't budging on oil prices.
In fact, they couldn't bring oil prices lower even if they wanted to.
Here's where oil prices are headed next...
For the last 45 years, Russia and Saudi Arabia have dominated global oil production. However, U.S. production is roaring back - and rewriting the international balance in the process.
Last week, the U.S. Energy Department announced that the United State surpassed Russia and Saudi Arabia to become the world's largest oil producer for the first time since 1973.
After years of subpar performance, North American Oil Production is back.
According to a report published by the U.S. Energy Information Administration last week, U.S. oil production rose to 10.7 million barrels a day in June.
This is the latest jump in what has turned into a two-year rally for a beleaguered North American oil industry.
The Delaware Basin in arid western Texas and southern New Mexico used to be a good deal more inviting than it is today.
In fact, around 300 million years ago, when the region was south of the Equator, the area was a lush, tropical reef teeming with Permian life, covered by the warm Delaware Sea, which was part of the ancient Panthalassa Ocean.
Nowadays, the fossilized remains of that reef are exposed in the hot desert air, and the once-aquatic landscape has given way to scrub and the national parklands of Carlsbad Caverns and the Guadalupe Mountains.
The area is also known for its vast, thick deposits of limestone...
... and shale. Virtually endless expanses of oil-rich shale - wellspring of the second American energy revolution.
And one company is in the perfect position to reap the rewards of this ancient treasure...
The two major global crude oil benchmarks - West Texas Intermediate and Brent - both saw solid gains this week.
