Looming Tidal Wave of U.S. Oil Supply

Sure, the oil markets have responded to the OPEC and Non-OPEC agreement to cut production. But perhaps not quite like the cartel anticipated!

While media headlines are chock-full of reports that parties to the agreement are complying with the cuts, this time it’s different.

And that’s because they’ve underestimated the supply coming out of a new swing producer: The United States.

And that’s going to drive oil prices down in a big way. Consider …

<1> Cumbersome U.S. inventory and surging production. U.S. oil inventories are at their highest seasonal level in 30 years and production is running at its fastest clip in nine months.

And I think this is just the start. Especially on a surge in U.S. oil drilling rig activity, which last week saw the biggest one-week jump in nearly four years.

<2> Surge in corporate spending and oil-patch investment. A recent poll of more than a dozen U.S. players showed an average 60% increase in capital expenditures for oil exploration and production planned for this year! This view was echoed by global investment bank Barclay’s calling for a 50% increase in American E&P spending.

There’s also a flurry of investment activity in the shale-rich Permian Basin.

And don’t forget: U.S. drillers have become nimble and well-funded with some shale producers generating a handsome profit at $45 per barrel. When they’re making money like that, the last thing on their minds is cutting production.

<3> Worrisome Speculator Positioning in the oil market. Initial excitement surrounding the OPEC production cut sparked aggressive buying interest into the oil market. In fact, figures compiled by the Commodity Futures Trading Commission (CFTC) show small speculators holding their largest long position on record …

These traders are considered the weak hands — generally underfunded and the last to enter the market. In fact, I use them as a contrarian indicator — what not to do.

As you can see from this chart, these weak hands are all in.

And that tells me to stay away.

In addition, given the current extreme reading, when these weak hands move to cover — in this case, sell their positions — oil will get hammered.

This is similar to late 2014 when oil topped $100 and small speculators held record net-long positions. They were forced to cover and kicked off a crash in oil prices.

Not surprisingly, this view is supported by my AI model: Oil prices should move sharply lower into late February.

I have advised members to strategically position themselves for lower oil prices at various points in recent weeks: Putting them in positions to take full advantage of a looming decline.

Don’t be left behind: Take a look at my Real Wealth Report and other trading services today.

Best wishes,

Larry

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Comments 12

  1. joan casson January 27, 2017

    Larry I am a member of RW. Your letters( including this one) have said more than once that you have positioned members for an oil price decline. However, I have not recd any recommendations in this regard What am I missing here?What gives?

    Reply

  2. Bob Schubring January 27, 2017

    A simple way to comply with California’s politically-driven environmental laws, would be for a major refining plant in the LA basin to shut down and lay off it’s workforce. The products pipelines in place between California and Texas, would allow some of that surplus supply to travel west for consumption in Southern California.

    Such a move would free up gobs of crude oil produced in Alaska, for export to Asian markets. Californians would face higher fuel prices, but then, they voted for them.

    Reply

  3. Dan Hoare January 27, 2017

    Just shortly after the GFC a number of oil drillers and producers went bust in the USA, when the Oil price descended from over $100 per barrel and down to $25 -$30pb, this decimated the shale Oil businesses cowboys for a long time; if what you’re saying about a new Oil glut coming from the US, then you’re going to get the say outcome aren’t you? Since the bad old day, oil price has recovered somewhat, sure some drillers are coming back on line to produce shale oil, very likely at lower cost as well; But for the ME oil producers it’s still expensive; these countries including Aramco, will need to further strangle their daily productions output further, or die!

    Reply

  4. Nick Picciano January 28, 2017

    Larry, great information, thank you. I would love to take advantage of your experience and advice to protect my family in the future. However, im not a Wall Street insider with $10,000-$30,000 dollars of free cash to invest. I’m a middle class “rust belt” individual with two kids in college, a 3 year old at home and wife who may need a third back surgery. I’m not a quitter and not complaining. I listened to your advice (scared the hell out me) and have to do something to protect my family. I’ve started buying Silver when I have some extra cash (not too often). What can I feasibly invest in that will generate enough return while not emptying my savings to do it? When the K Wave hits how long will the economy be down? What about any debt we are carrying when the wave hits? Will all creditors expect full payoffs in 30days?? Thank you very much.

    Reply

    • Justin T January 31, 2017

      Nick – please get additional opinions as to how to invest your hard earned money!

      Reply

  5. Moondog January 28, 2017

    Do you ever have any good news Larry? Every time I hear from you I get depressed. I am getting tired of your doom and gloom!

    Reply

  6. MD ANDERSON January 28, 2017

    You should be shorting oil. I bought shares (650) of ETF DRIP, I’m up 4% at Friday’s close.
    Of course, there are other ways to take advantage of the coming (further) drop in oil prices. Get in there and make some money; then get out. I learned about Direxion’s ETFs last year when Larry said sell mining shares and buy DUST. I’m a subscriber to RWR and use Larry’s (and other’s) info and forecasts and make investments. MR Edelson has helped me make significant profits. Take whatever information you have and make some choices. Ultimately, it’s up to YOU the individual investor.

    Reply

    • MD ANDERSON January 30, 2017

      DRIP ETF is up another 8.47% on the day (30 JAN), lmao. Larry knows what the hell he’s talking about.
      AND …..oil hasn’t even “tanked” yet.

      Reply

  7. Jas January 29, 2017

    Surely a stronger special relationship between Trump and May, will lead possibly to renewed economic growth worldwide, which is better for everyone on the planet long term.

    Reply

  8. Michael Sherman January 29, 2017

    Larry,
    With all the expectations for 2017 when do you expect it is time to buy gold and silver which seems to get pushed out month after month. I have the truck loaded ready to buy but you never seem to say “go”. Meanwhile it seems the December of 2016 was the best time to buy low.
    What are you thinking now about gold and silver buy in?
    Thanks
    Michael

    Reply

  9. Jim Schoonover January 30, 2017

    Larry,
    None of your comments mention increased demand. I believe the decline in production over the past year is beginning to create a more balanced environment. The big oil companies are still limiting investment in 2017 and the small producers are not going to change the production environment enough to cause oil prices to fall below $30 in my opinion.
    Jim Schoonover

    Reply

  10. US MARINE March 15, 2017

    We need to produce and disiminate our own oil. We need to stop lining the pockets of the Middle eastern countries. These countries are not paying the US fir our military troops protecting them from their own country born terrorists. When is enough already?????

    Reply