Here’s why the OPEC cuts won’t hold

The oil market is overjoyed and back above $50 a barrel following this week’s OPEC deal to cut production by 1.2 million barrels per day (bpd). The deal is expected to rebalance global inventories, perhaps in the first half of 2017.

I’ve got one word for that: Malarkey!

The fact is, oil’s in a temporary upswing at best. My models have been predicting bearish action in oil for a while now and I’ve spared no breath telling you about it. (More on this in a moment.)

And they’re not alone. Here are the latest reasons that oil is going down … and going down hard.

Bearish Factor #1: OPEC has a lackluster history of compliance with these kinds of deals: Over the last 17 production cuts – from 1982 to 2009 – their cuts came in at just 60% of what they promised. That translates to a measly 720,000 bpd — a drop in the bucket compared to world petroleum and liquids production of 96.26 million bpd.

Bearish Factor #2: Will non-OPEC member nations follow through with a 600,000 bpd cut? That’s a tall order with Russia already watering down their ability to cut their allotted 300,000 bpd because of “technical issues”.

Bearish Factor #3: The November 9th non-OPEC member meeting is liable to nix the entire OPEC deal before it even begins. Mexico already said they won’t cut their allotted 150,000 bpd in 2017. And Norway, Kazakhstan and Oman are sending mixed messages.

Bearish Factor #4: Even if all parties (OPEC and non-OPEC members) comply with stated adjustments, there are still concerns over supply and demand not addressed by the cartel.

Bearish Factor #5: Oil demand uncertainties have been moved to the back burner with headlines of a deal — but they’ve not gone away: Higher U.S. interest rates and a surging dollar — just like I predicted — are going to slam oil demand.

Bearish Factor #6: Recent data from China shows oil imports falling to their lowest level of the year in October. Plus, oil demand could come under added pressure from the yuan devaluation.

Bearish Factor #7: Then there’s economic uncertainty in India after Prime Minister Modi’s demonetization maneuvering, which is a threat to their appetite for crude oil.

Bearish Factor #8: Higher oil prices encourages greater production, which exacerbates an already massive global oil glut. In fact, the latest weekly stats from the U.S. Energy Information Administration shows oil production up 250,000 bpd in the last two-months to 8.699 million bpd.

I expect this figure to ratchet sharply higher with oil prices above $50, especially as U.S. shale producers have become technologically efficient. And higher oil prices will only bring more U.S. supply online.

Bearish Factor #9: Prospects for President-elect Trump’s administration to ease regulations on U.S. oil producers is another factor that aims at greater output, not less.

Why is this important to You?

The initial excitement surrounding the OPEC deal means prices are bid up artificially. That creates an ideal selling — not buying — opportunity. And like I said, that’s right in line with what my models have been calling for all along: Lower oil prices into early February. Take a look:

I’ve advised my members to begin positioning for the next leg lower in oil prices. They stand to make a bundle as excitement over OPEC’s latest scheme fizzles and global market realities come home to roost.

Be proactive, guard your wealth and take advantage of these market anomalies by subscribing to the Real Wealth Report today.

Best wishes,

Larry

 

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Comments 17

  1. Books December 2, 2016

    What a conundrum. Falling prices bad for investors, but good for drivers and truckers.

    Reply

  2. Tom December 2, 2016

    Very realistic, Mr. Edelson. I have read from a half a dozen sources that this deal will pave the way for higher prices. Some say in the mid 60’s. I could not find anybody saying what you have said. They are all bullish, and I think you are right on the money. I am certainly no expert, but it is demand that needs to change in order to support prices above $50. I will buy some XLE puts in the coming weeks. Thanks.

    Reply

  3. dennis morrisseau December 2, 2016

    Bearish factor @10

    The US hates Russia and wants very badly to cripple that nation’s income and prospects,
    so expect ANYthing to be tried….to accomplish this.

    Dennis Morrisseau
    US Army Officer [Vietnam era] ANTI-WAR
    –FOR TRUMP–

    Reply

  4. john eastman December 2, 2016

    thanks Larry! I will be looking to enter those shorts again!
    john eastman

    Reply

  5. Reggie December 2, 2016

    So how does it translate to stock opportunities.

    Thanks

    Reply

  6. Bruce December 2, 2016

    Hey Larry,

    As I have read so many times before; you make these large statements of market movement; but I am not so sure that you get it right. Like the most recent one several weeks ago calling for the big turn up in the gold market. You indicated, if I understood you correctly, that the gold market had bottomed finally and this was the start of something important. Instead gold shot up election night (probably short covering) and then promptly crashed. In fact the gold market looks very weak to me, not at all ready to take off into some new high.

    Let’s see how well this current call of a crash in oil (I personally would love to see this) plays out. I’ll be watching…….

    Reply

  7. david dickerson December 2, 2016

    thank you happy holiday god blesses

    Reply

  8. Nana Boadi December 3, 2016

    Nice article in dat case where will oil buy to before dropping to the lowest you

    Reply

  9. Will December 3, 2016

    The Delaware basin is huge competition for OPEC; they never saw this coming. Look at the number of new lower cost wells already being drilled at present day prices. South Korea is going to take more shipments from the Permian as well. Add these considerations to the very true bearish factors that Larry mentions, and you will see that Larry is absolutely correct with his forecast in my opinion.

    Reply

  10. G13man December 3, 2016

    shame ur chart is so small one can not read the writing on it !

    need to make it a web page link
    that by-passes email controls of our providers who fill the sides with adds
    which means the chart is worth less

    Reply

  11. $1,000 gold December 3, 2016

    so now we find the real price of oil. opec cuts, price goes up. price goes up, frackers move in and put a lid on prices. let the games begin.

    Reply

  12. Johanna Lipford December 3, 2016

    What was all the fuss about earlier this year, when we were told that oil would become out of fashion because there was this magic new way of getting energy out of the air? I should have thought that that all by itself spelled the end of the domination of petroleum as an energy source

    Reply

  13. Nora December 5, 2016

    So where does this leave the MLP’s? Can Trump overturn the latest move from the Army Corps of engineers to stop the Dakota Pipeline? Was Obama the cause?

    Reply

  14. Bob-Ohio December 5, 2016

    Larry
    You stated at least twice during Nov. 2016, that if the Dow closed above 18,500 monthly close, which it did, the market is off and running toward the 30,000 level.
    Haven’t heard a word from you about that, and now it’s Dec. 5.
    Whats up?????

    Reply

  15. Bob-Ohio December 5, 2016

    Larry: You stated in Nov. that if the Dow had a monthly close about 18,500, that the Dow would then be headed toward your forecast of 30,000. It closed above 18,500. What now?

    Reply

  16. Konstantin December 5, 2016

    Thank you for the article Larry. However, having said that, I fail to see where/when you have advised to short oil to your subscribers. I am one of those subscribers. What do we use to short OIL? There used to be DWTI/UWTI etns for this type of trade. These etns, however, are going to be delisted as of Dec 8,2016.
    One can always position with USO puts, but I was curious IF you have any other suggestions for this trade. Please advise. Thank you!

    Reply

  17. Darrell Smith December 6, 2016

    Trust but verify is still true. I have lost far more money following your recommendations than I have made- I have read and followed you for years and frankly I think that the so call artificial intelligence is an excellent name because it certainly appears to be artificial- you may even want to name it fictional intelligence.

    now having said that I agree with you on every point you made re the reasons the price of oil will not stay above $50 for long- ahh but there is the catch. Timing – for instance when GLD was trading in the 105-107 range it was still too early to buy- Thus i missed earning $20K on the run up to the mid-120’s ( i would have bailed in the high teens and then shorted it)
    Larry I think you know a lot about these subjects but i think you may allow your ego to run the show- always wanting to make The exact bottom or top when there is a lot of money to be made in the middle both long and short.
    PS i will buy SCO when i feel comfortable that it is near a real low- I don’t have to be in at the absolute bottom to make tons of money.
    Best wishes to all of us in these perilous times.

    Oh yes- what happened to the terrible crash that was to happen about this time last year.

    Reply